Court-Ordered Discovery in Aid of SUM Arbitration Denied

MATTER OF ARBITRATION OF ALLSTATE INSURANCE COMPANY, 2021 NY Slip Op 5418 - NY: Appellate Div., 4th Dept. 2021 - Google Scholar

Justice delayed is justice denied, some say.

So can discovery in a SUM (supplementary uninsured/underinsured motorists) coverage claim, apparently.  

In this case, the Fourth Department AFFRIMED the denial of Allstate's petition to stay arbitration of its insured's SUM claim because "the record here establishes that '[Allstate] had ample time...within which to seek discovery of the respondent insured as provided for in the insurance policy, and unjustifiably failed to utilize that opportunity' to obtain the discovery now sought."

The appellate court also agreed that Allstate had made no showing that the discovery allowed in arbitration would be inadequate to establish its case.

Finally, the court held that "[t]o the extent that [Allstate] argues that respondent's demand for arbitration was premature inasmuch as respondent had not complied with the terms of the endorsement for SUM coverage, that argument is not properly before us because [Allstate] failed to raise it before the [lower] court [on its petition]."  One of the basic tenets of appellate practice is that issues not raised and argued to the motion or trial court generally may not be raised and argued on appeal.  

When the Insured's Shoes Are Bigger Than the Tortfeasor's Shoes

AUTO – SUM COVERAGE – TRIGGER

Gross v. Travelers Ins.
(4th Dept., 7/24/2020)

Gross had an auto policy with Travelers that was written to afford BI and SUM coverage of $300,000 per person and $300,000 per accident.  He and his wife were injured when their vehicle was rear-ended by a vehicle operated by a nonparty tortfeasor, who was insured by The Hartford under a policy affording BI coverage with limits of $100,000 per person and $300,000 per accident.

In other words, the comparative BI coverage limits were:

                                Insured                                         Tortfeasor
Per person               $300,000                                      $100,000
Per accident            $300,000                                       $300,000

Gross settled his underlying personal injury claim for the tortfeasor's $100,000 per person policy limit, and his wife settled her claim for $16,000. Gross submitted a SUM claim to Travelers, which denied it on the ground that plaintiff's SUM coverage was not triggered because the tortfeasor's $300,000 in per accident BI coverage was not less than Gross's $300,000 in per accident BI coverage. Supreme Court agreed, and granted Travelers' motion to dismiss the complaint pursuant to CPLR 3211(a)(1) on that ground.  Gross appealed and the Fourth Department REVERSED, holding:

"Insurance Law § 3420(f)(2) was enacted to allow an insured to obtain the same level of protection for himself [or herself] and his [or her] passengers which he [or she] purchased to protect himself [or herself] against liability to others'" (Matter of Prudential Prop. & Cas. Co. v Szeli, 83 NY2d 681, 686 [1994], quoting Mem of St Exec Dept, 1977 McKinney's Session Laws of NY at 2446). It is well settled that, "[u]nder Insurance Law § 3420(f)(2), an insured's [SUM] coverage is triggered when the limit of the insured's bodily injury liability coverage is greater than the same coverage in the tortfeasor's policy" (id. at 684). More particularly, when determining whether SUM coverage is triggered, "[t]he necessary analytical step . . . is to place the insured in the shoes of the tortfeasor and ask whether the insured would have greater bodily injury coverage under the circumstances than the tortfeasor actually has" (id. at 687), which "requires a comparison of each policy's bodily injury liability coverage as it in fact operates under the policy terms applicable to that particular coverage" (id. at 688).  

Here, a comparison of the two policies at issue, in light of the circumstances of this case, demonstrates that plaintiff would be afforded greater coverage under his policy than under the tortfeasor's policy. The tortfeasor's policy would have provided plaintiff with only $100,000 of coverage for bodily injury, whereas plaintiff's policy would have provided him with up to $300,000 of coverage for bodily injury. Although plaintiff's SUM benefits would be reduced by the amount paid to his wife under the policy's $300,000 per accident maximum, he is still afforded more coverage under his policy than under the tortfeasor's policy because the bodily injury limit for an accident in which two people are injured would be $200,000 under the tortfeasor's policy, which is less than the coverage afforded by plaintiff's policy. Consequently, the SUM provision of plaintiff's policy was triggered (see Insurance Law § 3420[f][2][A]; Matter of Government Empls. Ins. Co. v Lee, 120 AD3d 497, 498-499 [2d Dept 2014]; Jones v Peerless Ins. Co., 281 AD2d 888, 889 [4th Dept 2001]).

Okay, you SUM savants.  What's the dispositive difference between the comparative coverage limits in this case and the comparative coverage limits in the seminal, controlling case of Prudential Prop. and Cas. Co. v. Szeli?  Hint: it has to do with swapping the headings in the above table.

When Is Bodily Injury "Caused by an Accident" for Purposes of Supplementary Uninsured/Underinsured Motorists Coverage?

SUPPLEMENTARY UNINSURED/UNDERINSURED MOTORISTS COVERAGE – INTENTIONAL ACTS – "ACCIDENT"

Matter of Progressive Advanced Ins. Co. (Widdecombe)
(3rd Dept., decided 1/4/2018)

You heard and paid attention to those Friends Don't Let Friends Drive Drunk ads.  You (Widdecombe) try to stop your friend (Germain) from driving drunk by following your staggering friend out the bar, sticking your foot in your friend's open car door and reaching for the ignition keys.  Undeterred and undaunted, your friend  screams that he's going to cut your leg off, starts his car, begins to drive off, trapping your foot, and drags you 20 feet, injuring your leg.  In addition to being not sober your friend was not insured, so you make a supplementary uninsured motorist (SUM) coverage claim to your own auto insurer.  What does your SUM insurer do?

Progressive disclaimed SUM coverage to its insured, Widdecombe, and commenced this special proceeding to permanently stay the SUM arbitration, contending that: (1) the Germain vehicle was not uninsured; (2) SUM coverage was excluded by the policy's intentional acts exclusion; and (3) Widdecombe's injuries did not result from an accident.  After conducting an evidentiary framed-issue hearing, Supreme Court granted Progressive's petition and permanently stayed arbitration of Widdecombe's SUM claim.  Widdecombe appealed.

In REVERSING Supreme Court's order and denying Progressive's petition to stay the SUM claim arbitration, the Third Department held:

(1) Supreme Court correctly ruled that the Germain vehicle was uninsured because none of his auto policies, including his most recent Hartford policy, was in effect on the incident date;

(2) Supreme Court erred in finding that an intentional acts exclusion in Widdecombe's policy with Progressive negated SUM coverage; Widdecombe's policy did not contain an intentional acts exclusion for UM or SUM coverage or anything similar to it; and

(3) whether Widdecombe's injuries were from an "accident" had to be determined from Widdecombe's perspective, not Germain's; whatever Germain's intent and criminal liability, the incident was an accident from Widdecombe's perspective:

We now turn to the dispositive question on appeal, which is whether Widdecombe's injuries were caused by an accident within the meaning of his policy with petitioner. Widdecombe's policy included SUM coverage, for which he paid a premium, providing for payment of "all sums that the insured . . . shall be legally entitled to recover as damages from the owner or operator of an uninsured motor vehicle because of bodily injury . . . caused by an accident arising out of such uninsured motor vehicle's ownership, maintenance or use" (emphasis added). The term "accident" is not defined in the policy and, thus, we must look to the definition provided by the Court of Appeals in State Farm Mut. Auto. Ins. Co. v Langan (16 NY3d 349, 353 [2011]). In State Farm, the Court held that, for purposes of an uninsured motorist endorsement, when an occurrence is — from the insured's perspective — "unexpected, unusual and unforeseen," it qualifies as an "accident" (id. at 355 [internal quotation marks and citation omitted]). As here relevant, the uninsured policy in State Farm contained identical language to Widdecombe's SUM policy. The Court further held that, although the insured was also the victim, "the intentional assault of an innocent insured is an accident within the meaning of his or her own policy" (id. at 356).  

Thus, whatever Germain's intent and criminal liability,[FN4] this incident was an accident from Widdecombe's perspective. Contrary to petitioner's contention, Widdecombe's uncontroverted testimony established that the incident "happened so fast" and, after he attempted to grab the keys, Germain said that "he was going to cut [Widdecombe's] leg off" and, as Widdecombe tried to get his leg out of the car, Germain "threw the car in drive" and "screeched" away, dragging Widdecombe. As in State Farm, this event "was clearly an accident from the insured's point of view," since having his leg trapped and being dragged was sudden and "unexpected, unusual and unforeseen" (State Farm Mut. Auto. Inc. Co. v Langan, 16 NY3d at 355-356; see Matter of Utica Mut. Ins. Co. v Burrous, 121 AD3d 910, 911 [2014]; Matter of Progressive Northeastern Ins. Co. v Vanderpool, 85 AD3d 926, 927 [2011]). Consequently, Supreme Court erred in granting the stay of arbitration and Widdecombe's claim should proceed to arbitration.

The prescribed New York UM/SUM endorsement does not contain an intentional acts exclusion.  Only the liability coverage section of personal auto policies does.

Bodily Injury Recovery from Non-Motor Vehicle Defendant Reduces SUM Coverage Recovery

SUM – OFFSET FOR BODILY INJURY RECOVERY – NON-DUPLICATION CONDITION – MAXIMUM SUM PAYMENT 
Redeye v. Progressive Ins. Co.
(4th Dept., decided 11/13/2015)

Condition 11 of the prescribed New York Supplementary Uninsured/Underinsured Motorists (SUM) Endorsement (11 NYCRR § 60-2.3[f]) provides

11.  Non-Duplication: This SUM coverage shall not duplicate any of the following: 

(a) benefits payable under workers' compensation or other similar laws;

(b) non-occupational disability benefits under article nine of the Workers' Compensation Law or other similar law;

(c) any amounts recovered or recoverable pursuant to article fifty-one of the New York Insurance Law or any similar motor vehicle insurance payable without regard to fault;

(d) any valid or collectible motor vehicle medical payments insurance; or

(e) any amounts recovered as bodily injury damages from sources other than motor vehicle bodily injury liability insurance policies or bonds.

Plaintiff was a pedestrian who was injured after a vehicle operated by a drunk driver collided with a parked vehicle, which was propelled into plaintiff and two other pedestrians. Plaintiff commenced an action against the driver of the vehicle as well as a fire company that allegedly served the driver alcoholic beverages prior to the accident, and he received a settlement from both, the cumulative total of which exceeded plaintiff's SUM coverage limit with Progressive.

Contending that only his settlement from the vehicle's driver should reduce his SUM recovery, plaintiff claimed SUM coverage benefits from Progressive.  Progressive denied the SUM claim on the ground that plaintiff's SUM coverage was exhausted by the recovery from both the driver and the fire company, prompting plaintiff to commence this action.  Progressive moved for summary judgment, which Supreme Court granted.

In AFFIRMING summary judgment to Progressive, the Appellate Division, Fourth Department, rejected plaintiff's argument that Progressive improperly reduced his SUM coverage by the amount he had received in settlement from the fire company's general liability insurer:

Supreme Court properly granted defendant's motion for summary judgment seeking, inter alia, to dismiss the complaint. Plaintiff does not dispute that the SUM coverage is properly reduced by the amount he recovered from the driver's insurer. He contends, however, that it was improper to reduce the SUM coverage from the amount he received from the fire company under its general liability insurance policy. We reject that contention. Condition 11 (e) of the SUM endorsement under defendant's policy provided that SUM coverage "shall not duplicate . . . any amounts recovered as bodily injury damages from sources other than motor vehicle bodily injury liability insurance policies or bonds." Here, the payment plaintiff received from the fire company's insurer was for bodily injury damages, and thus the amount of SUM benefits available to plaintiff was properly reduced by that amount (see Weiss v Tri-State Consumer Ins. Co., 98 AD3d 1107, 1110-1111).

Condition 6 of the prescribed SUM endorsement also provides:

6.  Maximum SUM Payments: Regardless of the number of insureds, our maximum payment under this SUM endorsement shall be the difference between:

(a) the SUM limits; and

(b) the motor vehicle bodily injury liability insurance or bond payments received by the insured or the insured's legal representative, from or on behalf of all persons that may be legally liable for the bodily injury sustained by the insured. 

The SUM limit shown on the Declarations is the amount of coverage for all damages due to bodily injury in any one accident.3 (The SUM limit shown on the Declarations for “Each Person” is the amount of coverage for all damages due to bodily injury to one person. The SUM limit shown under “Each Accident” is, subject to the limit for each person, the total amount of coverage for all damages due to bodily injury to two or more persons in the same accident).4

Plaintiff also argued that the SUM endorsement of his policy with Progressive was ambiguous because Condition 11 conflicted with Condition 6 of that endorsement.  In rejecting that argument, the appellate court held:

Contrary to plaintiff's contention, the policy is not ambiguous and condition 11 does not conflict with condition 6 of the SUM endorsement (see generally Dean v Tower Ins. Co. of N.Y., 19 NY3d 704, 708; White v Continental Cas. Co., 9 NY3d 264, 267). Condition 6 provides that the maximum payment under the SUM endorsement is the difference between the SUM limit and any payments received from a motor vehicle bodily injury liability policy. It does not state that the difference is "the" SUM payment that is to be given to plaintiff, but rather it states that the difference is the "maximum" payment, which the average insured would understand to mean that it could be further reduced (see generally Dean, 19 NY3d at 708). Condition 6 and condition 11 together resulted in a reduction in the SUM benefits available by the total settlement received by plaintiff in his prior action.

Maximum is not the.  The is not maximum.  Got it.

Police Vehicle Is Not a "Motor Vehicle" Covered by a SUM Endorsement

SUM  – "MOTOR VEHICLE" – POLICE VEHICLE
Matter of State Farm Mut. Auto Insur. Co. v. Fitzgerald
(Ct. Apps., decided 7/1/2015)

While riding in a patrol car being driven by State Farm's named insured (Knauss), a fellow police officer (Fitzgerald) was injured in an accident with an underinsured motor vehicle.

Question:  Is Fitzgerald entitled to SUM coverage under the SUM endorsement of Knauss's personal auto policy, which covers injuries to "any other person while occupying" Knauss's personal vehicle or "any other motor vehicle while being operated by [the named insured] or [the named insured's] spouse". The policy did not define the term "motor vehicle."

Answer:  No.  A police vehicle is not a "motor vehicle" covered by a SUM endorsement under New York Insurance Law § 3420(f)(2)(A).

In REVERSING the Appellate Division's denial of State Farm's petition to permanently stay arbitration of Fitzgerald's SUM claim, the Court of Appeals in a 4-3 decision held:

An unbroken line of historical practice, legislative history, statutory text and precedent establishes that a SUM endorsement prescribed by Insurance Law § 3420 (f)(2)(A) exempts police vehicles from its definition of the term "motor vehicle" absent a specific provision to the contrary in a given SUM endorsement. Since there is no contrary provision in the SUM endorsement here, it does not cover liability for injuries arising from the use of a police vehicle of the sort occupied by Fitzgerald during his accident. While Fitzgerald may pursue the available remedies, if any, under the No-Fault Law, a lawsuit or any insurance policy he has purchased for himself, he cannot recover under the SUM endorsement of Knauss's policy, and the Appellate Division erred in overturning the stay of arbitration under that policy. Accordingly, the order of the Appellate Division should be reversed, with costs, and the petition for a permanent stay of arbitration granted.

Danger Invites Rescue Doctrine Applied to Reverse Stay of SUM Arbitration

SUM  – USE OR OPERATION – DANGER INVITES RESCUE DOCTRINE
Matter of Encompass Indem. Co. v. Rich
(2nd Dept., decided 8/5/2015)

A firefighter injures his right shoulder while using the "jaws of life" to extricate the trapped driver of a vehicle that had crashed into a utility pole while speeding.

Question:  Is that injury compensable under the firefighter's personal auto policy's supplementary uninsured motorists (SUM) or underinsured motorists coverage?

Answer:  if there is proof that the negligent use of the underinsured motor vehicle causes an accident that led to the driver being trapped and in obvious need of medical attention, which, in turn, led to the insured's intervention and resulting injuries, then yes, SUM coverage is applicable.

New York SUM endorsements provide coverage only when the injuries are "caused by an accident arising out of such underinsured motor vehicle's ownership, maintenance or use[.]"  11 NYCRR 60-2.3(f).

In REVERSING the Supreme Court's order which had granted Encompass' application for a permanent stay of the respondent's SUM arbitration, the Appellate Division, Second Department, held:

Rich invoked the doctrine of "danger invites rescue" to establish that Goodman's negligent use of the underinsured vehicle proximately caused his injuries. That doctrine imposes liability upon a party who, "by his [or her] culpable act has placed another person in a position of imminent peril which invites a third person, the rescuing plaintiff, to come to his [or her] aid" (Provenzo v Sam, 23 NY2d 256, 260; see Wagner v International Ry. Co., 232 NY 176, 180;Flederbach v Lennett, 65 AD3d 1011, 1012). The doctrine also applies "where the culpable party has placed himself [or herself] in a perilous position which invites rescue" (Provenzo v Sam, 23 NY2d at 260 [emphasis omitted]; see Finnocchiaro v Napolitano, 52 AD3d 463, 465). "In order for the doctrine to apply, the rescuer must have had a reasonable belief that the person being rescued was in peril" (Kesick v New York Cent. Mut. Fire Ins. Co., 106 AD3d at 1221; see Provenzo v Sam, 23 NY2d at 260-261; Tassone v Johannemann, 232 AD2d 627, 628).

Here, Encompass failed to establish that Rich was not entitled to coverage under the SUM endorsement. The evidence in the record establishes that Goodman's negligent use of his vehicle directly caused the accident that led to him being trapped and in obvious need of medical attention, which, in turn, led to Rich's intervention and resulting injuries (see Kesick v New York Cent. Mut. Fire Ins. Co., 106 AD3d at 1221-1222). It cannot be said, as a matter of law, that Goodman's negligent use of his vehicle was not a proximate cause of Rich's injuries under the doctrine of danger invites rescue. Accordingly, the Supreme Court should have denied that branch of the petition which was to permanently stay arbitration.

The court also held that Encompass was not entitled to a temporary stay of the SUM arbitration to conduct pre-arbitration discovery because it "had ample time to seek discovery before commencing this proceeding and unjustifiably failed to do so (see Matter of Progressive N. Ins. Co. v Foss, 96 AD3d 855; Matter of State-Wide Ins. Co. v Womble, 25 AD3d 713, 714; Matter of Allstate Ins. Co. v Urena, 208 AD2d 623)."

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.

Production of Entire Claims File Ordered

SUM – DISCOVERY OF ENTIRE CLAIMS FILE – DEPOSITION OF HANDLING CLAIM REP
Heimbach v. State Farm Ins.
(4th Dept., decided 2/7/2014)

Pay attention insurers.  It has been the case decisional law in New York for some time that reports prepared by insurance investigators, adjusters, or attorneys before the decision is made to pay or reject a claim are not privileged and are discoverable.  Here is another case decision holding the same thing.

Plaintiff sued State Farm for SUM coverage benefits and served a discovery demand for State Farm's entire claims file.  She also sought to depose various representatives of State Farm, including the claim representative who had been handling her SUM claim.  State Farm apparently declined to produce the entire claims file and the handling claim rep for a deposition, and plaintiff moved to compel such discovery.  The motion court denied plaintiff's motion insofar as it sought the entire claims file and the handling claim rep's deposition.

In MODIFYING the order appealed from to grant plaintiff's motion to compel production of the entire claims file and the handling claim rep's deposition, the Fourth Department held:

Given the scope of the liability and damages issues framed by the pleadings, we conclude that plaintiff's request for the entire claim file was not palpably improper and that the disclosure was "material and necessary" for the prosecution of plaintiff's action (CPLR 3101 [a]; see generally Cain v New York Cent. Mut. Fire Ins. Co., 38 AD3d 1344, 1344; Gibson v Encompass Ins. Co., 23 AD3d 1047, 1047-1048). Furthermore, defendant failed to meet its burden of establishing that those parts of the claim file withheld from discovery by the court contain material that is privileged or otherwise exempt from discovery (see Gibson, 23 AD3d at 1048; Bombard v Amica Mut. Ins. Co., 11 AD3d 647, 648). Inasmuch as plaintiff established that defendant's claim representative directly responsible for handling plaintiff's claim possesses "material and necessary" information regarding the action (CPLR 3101 [a]), that part of plaintiff's motion seeking to compel his deposition also should have been granted.

Be advised.

SUM Insurer Not Required to Consent to High-Low Arbitration of Insured's Underlying Bodily Injury Claim

SUM – TRIGGER – SUBROGATION AGAINST TORTFEASOR – CONSENT TO HIGH-LOW ARBITRATION
Matter of Ducz v Progressive Northeastern Ins. Co.
(2nd Dept., decided 1/29/2014)

Interesting twist on the consent-to-settle condition of the New York SUM (supplementary uninsured motorists) coverage endorsement.

Before settling with a tortfeasor (at-fault party), SUM claimants must obtain the SUM insurer's consent.  A SUM insurer might not consent because it believes a subrogation claim against the tortfeasor for what it might have to pay in SUM coverage benefits to its insured is viable and collectible.  But what if instead of seeking to settle its bodily injury claim with the tortfeasor, the SUM claimant want to proceed with a high-low arbitration to decide that BI claim?  Must the SUM insurer give or not give its consent to that?  No, says the Second Department:

In a letter dated January 26, 2012, the respondent declined to consent to the arbitration, and indicated that it would not waive its right to subrogation against the alleged tortfeasor. Thereafter, the petitioner commenced the instant proceeding, and moved to compel the respondent to consent to the high-low arbitration and to direct the respondent to proceed to arbitration of the petitioner's claim for SUM benefits. The Supreme Court denied the petitioner's motion.

"As a condition precedent to the obligation of the insurer to pay under the supplementary uninsured/underinsured motorists insurance coverage, the limits of liability of all bodily injury liability bonds or insurance policies applicable at the time of the accident shall be [*2]exhausted by payment of judgments or settlements" (Insurance Law § 3420[f][2][A]). Contrary to the petitioner's contention, she failed to establish that she exhausted the alleged tortfeasor's policy through settlement (see Garcia v State Farm Ins. Co., 232 AD2d 488, 489; cf. Matter of State Farm Mut. Auto. Ins. Co. [Perez], 94 AD3d 1314, 1315-1316). Therefore, the Supreme Court properly denied that branch of the petitioner's motion which was to compel the respondent to proceed to arbitration of the petitioner's claim for SUM benefits.

The Supreme Court also properly denied that branch of the petitioner's motion which was to compel the respondent to consent to the high-low arbitration between the petitioner and the alleged tortfeasor's insurer, as that relief may not be sought in a CPLR article 75 proceeding (see CPLR 7503).

Rottie Bite Out Car Window Not Ownership, Maintenance or Use of Motor Vehicle

UNDERINSURED MOTORISTS COVERAGE – OWNERSHIP, MAINTENANCE OR USE OF UNDERINSURED VEHICLE – STAY ARBITRATION
Matter of Allstate v. Reyes
(2nd Dept., decided 8/7/2013)

Deborah Reyes was walking past a parked car at a Sunoco Mart in Poughkeepsie, New York, when a rottweiler dog extended its head from inside the vehicle and bit her right breast. Reyes sued  the vehicle's owner, Michael Kazimer, which GEICO, the insurer of Kazimer's vehicle, later settled for $25,000, the limits of the policy. Reyes then sought SUM coverage from her own auto insurer, Allstate. Allstate denied SUM coverage, concluding that the incident did not arise "out of the ownership, maintenance, or use of an underinsured vehicle." Reyes demanded arbitration of her SUM claim, and Allstate commenced this special proceeding to permanently stay arbitration. Supreme Court, Dutchess County (Pagone, J.) denied the petition, concluding that the incident had arisen "out of the ownership, maintenance, or use of an underinsured vehicle."  Allstate appealed.

In REVERSING Supreme Court's order and granting the petition to stay arbitration, the Appellate Division, Second Department, held:

Underinsured endorsements, such as the one at issue in this case, provide coverage only when the injuries are the result of an accident "arising out of such [underinsured's] motor vehicle's ownership, maintenance or use" (11 NYCRR 60-2.3[2][e][2]; see Matter of Liberty Mut. Fire Ins. Co. [Malatino], 75 AD3d 967, 968). Use of an automobile encompasses more than simply driving it, and includes all necessary incidental activities such as entering and leaving its confines (see Rowell v Utica Mut. Ins. Co., 77 NY2d 636, 638). To satisfy the requirement that it arose out of the "ownership, maintenance or use of" a motor vehicle, the accident must have arisen out of the inherent nature of the automobile and, as such, inter alia, the automobile must not merely contribute to the condition which produces the injury, but must, itself, produce the injury (see Zaccari v Progressive Northwestern Ins. Co., 35 AD3d 597, 599; Eagle Ins. Co. v Butts, 269 AD2d 558, 559-560; U.S. Oil Ref. & Mktg. Corp. v Aetna Cas. & Sur. Co., 181 AD2d 768). "[T]he vehicle itself need not be the proximate cause of the injury," but "negligence in the use of the vehicle must be shown, and that negligence must be a cause of the injury" (Zaccari v Progressive Northwestern Ins. Co., 35 AD3d at 599; see Empire Ins. Co. v Schliessman, 306 AD2d 512, 513). "To be a cause of the injury, the use of the motor vehicle must be closely related to the injury" (Zaccari v Progressive Northwestern Ins. Co., 35 AD3d at 599).

Here, as a matter of law, Reyes's injuries did not result from the inherent nature of Kazimer's vehicle, nor did the vehicle itself produce the injuries. The injuries were caused by Kazimer's dog, and the vehicle merely contributed to the condition which produced the injury, namely, the location or situs for the injury. Allstate established that a causal relationship between the car and the incident was lacking, and Reyes failed to rebut that showing (see Empire Ins. Co. v Schliessman, 306 AD2d at 513; Eagle Ins. Co. v Butts, 269 AD2d at 559; see also Keppler v American Family Mut. Ins. Co., 588 NW2d 105; Sanchez v State Farm Mut. Auto. Ins. Co., 878 P2d 31; Alvarino by Alvarino v Allstate Ins. Co., 370 Pa Super 563; American States Ins. Co. v Allstate Ins. Co., 484 So 2d 1363). Accordingly, since coverage is lacking, the Supreme Court should have granted the petition to permanently stay arbitration.

It was the dog, not the car, that caused Reyes' injuries, so no SUM coverage.  But can someone explain to me why GEICO paid its policy limit in the first place?

Second Department Holds that SUM Limit Is To Be Reduced by Recovery from All Tortfeasors

UNDERINSURED MOTORISTS COVERAGE – OFFSET – NON-DUPLICATION PROVISION 
Weiss v. Tri-State Consumer Ins. Co.
(2nd Dept., decided 9/26/2012)

$250,000 per person/$500,000 per accident SUM limits.
Two deaths in insured vehicle.
Drunk driver and two Dram Shop defendants.
Drunk driver's auto insurer pays $100,000 limit to settle.
Dram Shop defendants and their insurers pay $255,000 to settle.
Total settlement of wrongful death action = $355,000.

Question:  What's the recoverable SUM coverage limit?
Answer:  $145,000.

Plaintiffs successfully argued to Supreme Court that the recoverable SUM limit was $400,000 because only the $100,000 settlement amount from the drunk driver's motor vehicle liability insurer was to be deducted from the $500,000 per accident SUM limit.   In REVERSING the Supreme Court's denial of summary judgment to defendant Tri-State, the Second Department reasoned:

The subject policy contained the standard SUM endorsement prescribed by the Superintendent of Insurance in Regulation No. 35-D (11 NYCRR 60-2.3[c], [f]). Two conditions in the endorsement are directly at issue in this appeal. Condition 6 provides:

6. Maximum SUM Payments. Regardless of the number of insureds, our maximum payment under this SUM endorsement shall be the difference between:

a) The SUM limits; and

b) The motor vehicle bodily injury liability insurance or bond payments received by the insured or the insured's legal representative, from or on behalf of all persons that may be legally liable for the bodily injury sustained by the insured.

The SUM limit shown on the Declarations for "Each Person" is the amount of coverage for all damages due to bodily injury to one person. The SUM limit shown under "Each Accident" is, subject to the limit for each person, the total amount of coverage for all damages due to bodily injury to two or more persons in the same accident.

Condition 11 provides:

11. Non-Duplication. This SUM coverage shall not duplicate any of the following:

(a) Benefits payable under workers' compensation or other similar laws; 

(b) Non-occupational disability benefits under article nine of the Workers' Compensation Law or other similar law;

(c) Any amounts recovered or recoverable pursuant to article fifty-one of the New York Insurance Law or any similar motor vehicle insurance payable without regard to fault;

(d) Any valid or collectible motor vehicle medical payments insurance; or

(e) Any amounts recovered as bodily injury damages from sources other than motor vehicle bodily injury liability insurance policies or bonds.

SUM coverage in New York is a converse application of the golden rule; its purpose is "to provide the insured with the same level of protection he or she would provide to others were the insured a tortfeasor in a bodily injury accident" (Matter of Prudential Prop. & Cas. Co. v Szeli, 83 NY2d 681, 687; see Matter of Allstate Ins. Co. v Rivera, 12 NY3d 602, 608; Raffellini v State Farm Mut. Auto. Ins. Co., 9 NY3d 196, 204; see generally Norman H. Dachs and Jonathan A. Dachs, SUM Insurance Dilemma Hits the Mainstream, NYLJ, Sept. 19, 2012 at 3, col 1). With this limited purpose, SUM coverage does not function as a stand-alone policy to fully compensate the insureds for their injuries (cf. Bauter v Hanover Ins. Co., 247 NJ Super 94, 96-97, 588 A2d 870, 872, cert denied 126 NJ 335, 598 A2d 893). The conditions quoted above make this clear, as do other conditions not directly at issue in this case.

Here, the maximum SUM coverage of the subject policy was $500,000 per accident. The amount payable under that coverage was reduced, under Conditions 6(a) and 6(b), by the $100,000 paid by McGibbon's insurer, inasmuch as that amount constituted a "motor vehicle bodily injury liability insurance . . . payment[ ]" that the plaintiffs received (11 NYCRR 60-2.3 [f]). Further, the Dram Shop claims were settled for a total of $255,000. The Dram Shop recovery constitutes, under Condition 11(e), an amount "recovered as bodily injury damages from sources other than motor vehicle bodily injury liability insurance policies or bonds." Condition 11 does not allow duplicate recovery of such damages. Consequently, under the terms of the SUM endorsement, the plaintiffs' receipt of the Dram Shop recovery reduces, by that same $255,000, the amount payable under the SUM endorsement. The plaintiffs are not penalized by this reduction, since they received the maximum amount for which they are covered under the SUM endorsement: $100,000 from McGibbon's policy, $255,000 from or on behalf of the Dram Shop defendants, and $145,000 from Tri-State.

Court of Appeals Declines to Disturb SUM Arbitration Award Despite Arbitrator's Refusal to Give Collateral Estoppel Effect to Prior No-Fault Arbitration Award

SUM – NO-FAULT – COLLATERAL ESTOPPEL – VACATING ARBITRATION AWARD
Matter of Falzone v. New York Cent. Mut. Fire Ins. Co.
(Ct. Apps., decided 10/21/2010)

Falzone arbitrated New York Central Mutual's denial of no-fault benefits and won.  She then arbitrated her related SUM claim against NYCM before a different arbitrator and lost on the ground that her injuries were not caused by the accident.  Contending that the second arbitration decision was inconsistent from the first, and that NYCM was collaterally estopped in the SUM arbitration from relitigating the issue of causation with respect to her injuries, Falzone commenced this CPLR article 75 special proceeding to vacate or modify the SUM arbitration award.  Supreme Erie granted petitioner's motion to vacate the SUM award and NYCM appealed.

In a 3-2 split decision, the Fourth Department, Appellate Division, reversed the order and confirmed the SUM arbitration award, the three-justice majority noting that "[t]he fact that a prior arbitration award is inconsistent with a subsequent award is not an enumerated ground in either subdivision (b) or (c) of CPLR 7511 for vacating or modifying the subsequent award[.]"

In 6-1 split decision, the New York Court of Appeals AFFIRMED the Appellate Division's decision, the six-judge majority holding: 

It is well settled that a court may vacate an arbitration award only if it violates a strong public policy, is irrational, or clearly exceeds a specifically enumerated limitation on the arbitrator's power (see Matter of New York City Tr. Auth. v Transport Workers' Union of Am., Local 100, AFL-CIO, 6 NY3d 332, 336 [2005]; Matter of United Fedn. of Teachers, Local 2, AFT, AFL-CIO v Board of Educ. of City School Dist. of City of N.Y., 1 NY3d 72, 79 [2003]; CPLR 7511 [b] [1] [iii]).  Even where an arbitrator has made an error of law or fact, courts generally may not disturb the arbitrator's decision (see Transport Workers' Union of Am., Local 100, AFL-CIO, 6 NY3d at 336 ["[C]ourts are obligated to give deference to the decision of the arbitrator.  This is true even if the arbitrator misapplied the substantive law in the area of the contract (citations omitted)."]).  Here, petitioner's claim —- that the arbitrator erred in failing to apply collateral estoppel to preclude litigation of the causation issue in the SUM arbitration — falls squarely within the category of claims of legal error courts generally cannot review.

* * * * *

Here, the prior (no-fault) arbitration award involved the same parties, the same accident, the same injuries, and resolution of the same issue (causation) as the subsequent (SUM) arbitration award. Respondent insurer, a party to the prior arbitration, lost on the causation issue. Petitioner, the prevailing party on that issue in the prior arbitration, reasonably argued that collateral estoppel should apply to bar relitigation of the causation issue in the subsequent SUM arbitration. The SUM arbitrator rejected petitioner's argument, had the parties relitigate the causation issue and, contrary to the no-fault arbitrator's determination, found in respondent insurer's favor on the causation issue.

It is not for us to decide whether the SUM arbitrator erred in not applying collateral estoppel (i.e., not giving preclusive effect to the no-fault arbitrator's determination on the issue of causation). Because the SUM arbitration award was not patently irrational or so egregious as to violate public policy, the instant SUM arbitration award (and whether the SUM arbitrator erred or exceeded his authority) is beyond this Court's review powers.

As I observed when posting about the Fourth Department's decision, although some practitioners may regard this decision as standing for the proposition that collateral estoppel no longer attaches to no-fault arbitration awards in New York, the ruling is much more narrow than that.  The Fourth Department's majority reversed the trial judge and confirmed the award not because they believed collateral estoppel could or did not apply to preclude NYCM from relitigating injury causality, but because they (and the dissent) adhered to the rule that collateral estoppel is not a basis on which Supreme Court may, under CPLR 7511, vacate an arbitration award.  On that procedural basis the Court of Appeals agreed and declined to disturb the arbitrator's award. 

Why Does New York's Timely Disclaimer Statute -- Insurance Law § 3420(D)(2) -- Apply To SUM Claims?

A client recently asked why New York Insurance Law § 3420(d)(2) -- which requires insurers wishing to disclaim liability or deny coverage under liability policies for death or bodily injury arising out an accident occurring within this state to do so "as soon as is reasonably possible" -- applies to SUM (supplementary uninsured motorists) or underinsurance claims.

The reason, I told him, is because SUM coverage, like UM coverage, insures against inadequate or non-existent liability coverage of the tortfeasor, leading the New York courts to hold that Insurance Law § 3420(d)(2) applies to require timely disclaimers and denials of SUM coverage when such coverage declinations are based on either policy exclusions or conditions. See, e.g., Hess v. Nationwide Mut. Ins. Co., 273 AD 2d 689 (3d Dept. 2000) (condition requiring claimant to notify SUM insurer of underlying personal injury action).  Declinations of SUM coverage based on lack of inclusionary grounds – claimant is not an “insured”; injury-causing incident was not an accident; offending vehicle not an “uninsured motor vehicle”; etc. – are not subject to 3420(d)(2). See, e.g., Matter of Nationwide Ins. Co. v. Smaller, 271 AD 2d 537 (2d Dept. 2000) (claimant not a resident relative of named insured’s household).

Perhaps that's also why our state's Insurance Law § 3420, which is entitled "Liability insurance; standard provisions; right of injured person", includes subsections for UM (3420[f][1]) and SUM (3420[f][1]) coverage requirements.

My client's core question related to whether his company would have "enough time" to conduct an EUO of the claimant before deciding whether to accept or deny the SUM claim.  I explained there is plenty of New York case law holding that an insurer should be given sufficient time to investigate coverage, and that the timely disclaimer/denial requirement imposed by Insurance Law § 3420(d)(2) accrues, if you will, only from when the insurer possesses sufficient information with which to make a coverage decision.  If an EUO is required to ascertain facts and information needed to make the SUM coverage decision, and the potential non-coverage ground is exclusion or condition based, then 3420(d)(2) should not apply to invalidate a declination sent as soon after the EUO’s completion as possible.  If the potential non-coverage ground is non-inclusionary based, 3420(d)(2) shouldn’t apply at all.

Remember the light switch.  And if you don't know what that is, you haven't been to one of my firm's annual coverage seminars.   On, off, and the power/power cord. 

On an Issue of First Impression, Third Department Holds that an Underinsurance Claim is Ripe Only if the Exhaustion of Limits Is of the Adverse Driver's Bodily Injury Insurance

SUM – TRIGGER – EXHAUSTION OF OTHER DRIVER'S POLICY LIMITS
Matter of Kemper Mut. Ins. Co. v. Russell
(3rd Dept., decided 7/1/2010)

If instead of collecting the other driver's full $50,000 in auto liability insurance coverage limits, you collect that amount from the legal malpractice insurer of the law firm that failed to sue your personal injury claim in a timely manner, do you have a supplementary uninsured motorists (SUM) coverage or underinsured claim against your own auto insurer?  In a 4-1 decision, the Third Department, Appellate Division, says no, you do not.

Patricia Russell was injured in a 2000 accident in which the automobile she was driving was rear-ended by another car.  She retained a law firm to bring a personal injury suit and, when the firm failed to timely do so, her ensuing legal malpractice action against the firm settled for $50,000, an amount equal to the full limit of the other driver's automotive liability insurance.  Russell then advised Kemper, her personal auto insurer, that she intended to file a supplementary uninsured/underinsured motorist (SUM) insurance coverage claim.  After she demanded arbitration of that claim, Kemper commenced this proceeding seeking a stay of arbitration.  Supreme Court granted the petition to the extent of temporarily staying arbitration pending a hearing on various issues, and Kemper appealed.

In REVERSING the order appealed from and granting Kemper's petition for a permanent stay of the SUM arbitration, the four-justice majority held:

An insurer is obligated to pay under SUM coverage if the bodily injury liability insurance limits of its insured's policy exceed those of the other policy, subject to the condition that "the limits of liability of all bodily injury liability bonds or insurance policies applicable at the time of the accident shall be exhausted by payment of judgments or settlements" (Insurance Law § 3420 [f] [2] [A]; see Matter of Federal Ins. Co. v Watnick, 80 NY2d 539, 546 [1992]).  The statute, in short, "requires primary insurers to pay every last dollar, and requires [respondent] to accept no less, prior to the initiation of an underinsurance claim" (Matter of Federal Ins. Co. v Watnick, 80 NY2d at 546).  The primary insurer here, however, has paid nothing, as respondent was forced to recover damages in a separate legal malpractice claim.  As the other driver's policy limit was not exhausted by payment, respondent's own SUM coverage does not come into play, and Supreme Court should have granted petitioners' application for a permanent stay. 

In her lone dissent, Justice Garry opined that the majority had misread and misinterpreted this language of New York Insurance Law § 3420(f)(2)(A):

As a condition precedent to the obligation of the insurer to pay under the supplementary uninsured/underinsured motorists insurance coverage, the limits of liability of all bodily injury liability bonds or insurance policies applicable at the time of the accident shall be exhausted by payment of judgments or settlements.  (Emphasis added.)

Justice Garry thought the majority had placed undue emphasis on the modifying phrase "all bodily injury . . . insurance policies" in holding that Russell must obtain the pertinent funds directly from the automobile carrier as a condition precedent to enforcing her contract with her own carrier:

Had the Legislature intended to require exhaustion of the applicable policies as opposed to exhaustion of the limits, this purpose would be met by simply stating that "all bodily injury insurance policies . . . shall be exhausted." This is not what the statute requires; the modifying phrase instead defines the measure of benefits, nothing more, and neither precedent nor public policy supports construing the statutory language as the majority suggests.

* * * * *

Upon this appeal, it is undisputed that respondent obtained the full amount of the "limits of liability" of the tortfeasor's bodily injury policy applicable at the time of the accident, albeit from another carrier. This unusual circumstance apparently presents a matter of first impression and, as Supreme Court correctly noted, no legal precedent establishes that the source of payment, as opposed to the amount of the payment, is a critical factor in the analysis. Instead, as respondent has obtained the full amount of the "limits of liability" of the applicable underlying bodily injury policy, the requisite statutory condition has been met, and the insurer's interests have been fully protected ^[FN2]. Accordingly, I would affirm the determination in full and allow the parties to proceed for determination of the remaining issues.

Although this was a reversal of the Supreme Court's order, with only one rather than two dissents, Russell will need leave of either the Third Department or the Court of Appeals to place what appears to be this issue of first impression before the Court of Appeals for determination.

Res Judicata and Collateral Estoppel Not Applicable to Bar Relitigation of Rate Evasion-Based Voiding of Pennsylvania Auto Policy

AUTO – UM/SUM – RATE EVASION – RES JUDISCATA – COLLATERAL ESTOPPEL
Matter of AutoOne Ins. Co. v. Valentine
(2nd Dept., decided 4/20/2010)

On January 3, 2004, Valentine was involved in an automobile accident in Queens with a motor vehicle operated by Rodriguez. The petitioner, AutoOne Insurance Company, insured the Valentine vehicle.  Rutgers Casualty Insurance Company insured the Rodriguez vehicle.

In 2005, Rutgers commenced an action in Pennsylvania state court against, among others, Rodriguez and Valentine.  AutoOne was not a party to the Pennsylvania action. Rutgers' complaint alleged that Rodriguez had fraudulently represented on his application for insurance that he resided in Pennsylvania and that his vehicle was garaged there.  Rutgers sought to have Rodriguez's policy declared void ab initio.  The complaint also stated that "[a]ll other defendants named herein are so named FOR THE PURPOSE OF NOTICE ONLY," referring to Valentine and all of the defendants other than Rodriguez.

In 2006, the Pennsylvania state court declared Rodriguez's policy void ab initio upon the default of Rodriguez and granted Rutgers' request to discontinue the Pennsylvania action against all other defendants, including Valentine.

Valentine thereafter amended his supplementary uninsured motorists (SUM) coverage claim to AutoOne and demanded arbitration.  In 2008, AutoOne commenced this special proceeding and sought leave to join Rutgers and Rodriguez as proposed additional respondents and temporarily to stay arbitration of Valentine's claim for SUM benefits pending a hearing on the determination of coverage under Rodriguez's policy with Rutgers.

Queens Supreme Court (Rios, J.) granted AutoOne's petition and Rutgers appealed.  In AFFIRMING the order appealed from, the Second Department ruled:

• the doctrine of res judicata did not apply to bar relitigation in this proceeding of the issue of insurance coverage for the Rodriguez vehicle under the Rutgers policy because the Pennsylvania court order was not a final judgment on the merits which would be entitled to res judicata effect in this proceeding;
  
  
• because the discontinuance of Rutgers' Pennsylvania state court action as to Valentine did not state that it was granted with prejudice, it did not operate as an adjudication on the merits for purposes of res judicata application; and
  
  
• the doctrine of collateral estoppel did not apply to bar relitigation in this proceeding of the insured status of the Rodriguez vehicle because that issue was not actually litigated and decided in the Pennsylvania action, since Rodriguez defaulted and the Pennsylvania court's order voiding his policy ab initio was issued on that basis.

Not SUM Late Notice -- 16-Month Delay

AUTO – SUM – LATE NOTICE – SERIOUSNESS OF INJURIES
Matter of Tri-State Consumer Ins. Co. v. Furboter
(3rd Dept., decided 3/2/2010)

The insured did not notify petitioner, Tri-State Consumer Insurance Company, of his supplementary uninsured motorists (SUM) coverage claim until 16 months after the accident.  Tri-State denied the claim based on late notice, and commenced this special proceeding to permanently stay the SUM claim arbitration.  Nassau Supreme denied Tri-State's petition, and it appealed.

In AFFIRMING the order appealed from, with costs, the Second Department held:

Contrary to the petitioner's contention, the Supreme Court properly denied its petition to permanently stay the arbitration of the respondent's underinsured motorist benefits claim on the ground of late notice. In determining whether notice was given in a timely fashion, the court must consider the particular circumstances of the case, including, inter alia, the latency, nature, and seriousness of the insured's injuries (see Matter of Metropolitan Prop. & Cas. Ins. Co. v Mancuso, 93 NY2d 487, 493; Matter of Progressive Northeastern Ins. Co. v McBride, 65 AD3d 632, 633). In the instant case, the uncontroverted affidavit and medical records of the respondent demonstrated that his delay of some 16 months in notifying the petitioner of his claim for underinsurance benefits was attributable to the belief of his various treating physicians that his injuries were relatively minor and would resolve with treatment. Moreover, the respondent gave notice promptly after he was made aware of the worsening and permanent nature of his injuries (see Matter of Progressive N. Ins. Co. v Sachs, 50 AD3d 803, 804-805; Matter of New York Cent. Mut. Fire Ins. Co. [Guarino], 11 AD3d 909, 911; Medina v State Farm Mut. Auto. Ins. Co., 303 AD2d 987; Matter of Nationwide Ins. Co. [Bellreng], 288 AD2d 925; Matter of Nationwide Ins. Enter. [Leavy], 268 AD2d 661, 662-663). Accordingly, the respondent complied with his obligation to give notice "[a]s soon as practicable" under the policy.

The latency, nature and seriousness of a SUM claimant's injuries must be taken into consideration in determining whether the claimant has provided timely notice of the SUM claim. 

Volunteer Firefighter Injured While Directing Traffic Away from Accident Scene Found Not Entitled to SUM Coverage Under His Fire Company's Business Auto Policy

SUM – BUSINESS AUTO – MEANING OF "YOU" – "OCCUPYING"
Gallaher v. Republic Franklin Ins. Co.
(4th Dept., decided 2/11/2010)

An insurance actuary of one of your readers' companies could probably tell me what the chances are of seeing two reported decisions on the issue of supplementary uninsured motorists (SUM) or underinsured motorists coverage for volunteer firefighters in the span of two weeks.  Matter of American Alternative Ins. Corp. v. Pelszynski out of Suffolk County Supreme was the first; here's the second.

Volunteer firefighter James Gallagher had ridden to the scene of a motor vehicle accident on his fire company's truck.  Upon arrival, he exited the truck and, at the time of the accident that led to his injuries, was directing traffic away from the original accident scene.  The relevant SUM endorsement defined an insured as "[y]ou, as the named insured" and "[a]ny other person while occupying . . . [a] motor vehicle insured for SUM under this policy." The SUM endorsement also defined "occupying" as "in, upon, entering into, or exiting from a motor vehicle."

Republic Franklin, the volunteer fire company's business auto insurer, denied SUM coverage to Gallagher, and he sued for that coverage, arguing alternatively that he qualified as an "insured" under the policy's SUM endorsement or that he was "occupying" the SUM-covered fire truck at the time of his accident.  Wayne County Supreme Court denied both parties' motions for summary judgment, and both parties appealed.

In REVERSING the order appealed from insofar as it had denied Republic Franklin's motion for summary judgment, the Appellate Division, Fourth Department, held that: (1) Gallagher was not a named insured under the policy because the "[y]ou" in the SUM endorsement referred only to the fire company and did not also refer to an employee of the company; and (2) Gallagher was not "occupying" the fire truck at the time of his accident because his conduct in directing traffic was unrelated to the truck and was not incidental to his exiting it:

Addressing first plaintiff's cross appeal, we conclude that the court properly determined that plaintiff is not a named insured under the policy. The named insured was the fire company, and thus "[y]ou" in the SUM endorsement referred only to the fire company and did not, as plaintiff contends, also refer to an employee of the company (see Buckner v Motor Veh. Acc. Indem. Corp., 66 NY2d 211, 214; Matter of Coregis Ins. Co. v Miceli, 295 AD2d 511). Addressing next defendant's appeal, we agree with defendant that the court erred in determining that there is an issue of fact whether plaintiff was covered under the policy as a person occupying the truck. At the time of the accident, plaintiff had exited the fire company's truck and was directing traffic away from the scene of a motor vehicle accident.  Plaintiff's conduct in directing traffic was "unrelated to the [truck]" and was not incidental to his exiting it (Matter of Travelers Ins. Co. [Youdas], 13 AD3d 1044, 1045). Thus, under the facts of this case, plaintiff was not "occupying" the truck within the meaning of that term in the policy (see Matter of Martinez, 295 AD2d 277, 278; Coregis Ins. Co., 295 AD2d at 511). 

Does this decision conflict with and, as it's from the Appellate Division, override the Pelszynski decision?  One could argue either way.  The holding in Pelszynski turned not on the meaning of "you" as used in the first part of the SUM endorsement's definition of "insured", but on subpart 2.(b) of that definition.  Moreover, "occupying" was not at issue in Pelczynski.  Read literally, however, the Fourth Department's statement that "'[y]ou' in the SUM endorsement referred only to the fire company and did not, as plaintiff contends, also refer to an employee of the company" could be construed to conflict with the holding in Pelszynski.

Volunteer Firefighter Responding to Emergency Call in His Own Vehicle Found Entitled to SUM Coverage Under Department's Business Auto Policy

SUM – DEFINITION OF "INSURED" – BUSINESS USE OF PERSONAL AUTO
Matter of American Alternative Ins. Corp. v. Pelszynski
(Sup. Ct., Suffolk Co., decided 1/27/2010)

Respondent, a volunteer firefighter, was injured in an auto accident while responding to an emergency call in his own vehicle.  He settled a personal injury action against the driver of the other vehicle and made a claim for supplementary uninsured motorists (SUM) or underinsured coverage benefits against petitioner, his fire department's business auto insurer.  AAIC declined SUM coverage and respondent demanded arbitration, prompting this special proceeding to stay that arbitration.

In denying AAIC's petition for a stay and granting respondent's cross motion to compel arbitration, Suffolk County Supreme Court Justice Mark Cohen found that respondent qualified as an "insured" for SUM coverage under the business auto policy, even though he was operating his own vehicle.

At the conference, the parties assisted the Court in clearly indicating that the Petitioner's vehicle would not be a covered auto.²  The focus is on the New York Supplementary Uninsured/Underinsured Motorists Endorsement, which defines insured:

1.  Definitions:  For purposes of this SUM endorsement, the following terms have the following meanings:

     a.  Insured.  The unqualified term "insured" means:

         (1) you, as the named insured and, while residents of the same household, your spouse and relatives of either you or your spouse;

         (2) any other person while occupying:

              (a) a motor vehicle insured for SUM under this policy; or

              (b) any other motor vehicle while being operated by you or your spouse

The Respondent notes, and the Petitioner concedes, that the New York State Insurance Department issued an informal opinion, dated February 8, 2002, which interpreted the SUM language. The opinion found that an employee of the business operating their own vehicle during the course of employment and while acting within the scope of their duty would be covered under the SUM endorsement. Although the informal opinion does not demand stare decisis adherence, courts may defer to the government agency charged with the responsibility for administration of the particular statute, "[w]here the interpretation of a statute or its application involves knowledge and understanding of underlying operational practices or entails an evaluation of factual data and inferences to be drawn therefrom ..." Kurcsics v. Merchants Mut. Ins. Co., 49 N.Y.2d 451, 459. The analysis seems to be the reasonable construction of the policy language. Moreover, as the Respondent notes, SUM coverage was to apply to individuals, herein volunteers, of the named insured, since only individuals can have a spouse or a relative. Alternatively, an "insured" is "a person occupying ...any other motor vehicle while being operated by you." The phrase "other motor vehicle," would have to mean a non-covered vehicle and for a volunteer, would be his or her own vehicle while acting within the scope of his or her employment.³

Footnote #2 of the court's decision is especially important. AAIC apparently did not timely assert one of the exclusions that is found in the prescribed UM/SUM endorsement that would otherwise negate coverage for employees or volunteers of a named insured injured while using their own motor vehicles if those vehicles are not specifically insured for SUM coverage under their employers' or principals' business auto policy:

This SUM coverage does not apply:

2. to bodily injury to an insured incurred while occupying a motor vehicle owned by that insured, if such motor vehicle is not insured for SUM coverage by the policy under which a claim is made, or is not a newly acquired or replacement motor vehicle covered under the terms of this policy.

The "insured" as used in that exclusion would be the church employee in the OGC opinion letter and the volunteer firefighter in this case.

Oddly, on its face, this exclusion seemingly would not apply if the employee or volunteer of the named insured were using someone else's vehicle, i.e., a non-owned vehicle. I guess the underwriting intent is to not provide SUM coverage for the use of owned vehicles that employees or volunteers regularly use. Nonetheless, the implied requirement that the employee or volunteer be acting within the scope of his or her "employment" by the named insured at the time of the accident remains, regardless of the vehicle's ownership.

So, an employees who is injured in the course of his employment while driving someone else's car may be entitled to SUM coverage under his employer's business auto policy if it includes SUM coverage? Under this decision, it appears so.

H/t to Eric Turkewitz of the New York Personal Injury Blog for the heads up on this decision.

Note: The Fourth Department, Appellate Division, issued a decision on February 11, 2010 that calls this decision into question.  See this blog's post regarding the Gallaher v. Republic Franklin Ins. Co. case. 

SUM Lack of Proof

SUM – CPLR ARTICLE 75 PROCEEDING – CHANGE ENDORSEMENT – OFFICE MAILING PROCEDURE – LACK OF PROOF
Matter of Government Employees Ins. Co. v. Brunner
(2nd Dept., decided 1/19/2010)

GEICO brought this CPLR article 75 special proceeding for a permanent stay of the arbitration of respondent's supplementary uninsured motorists (SUM) coverage claim.  In support of its application, GEICO contended the SUM limits of the policy under which respondent had claimed SUM coverage had been reduced by a policy change endorsement to $25,000/$50,000.   After an evidentiary hearing on the issue, Suffolk Supreme denied GEICO's petition, dismissed the proceeding, and directed the parties to proceed to arbitration.  GEICO appealed.

In AFFIRMING the lower court's judgment, the Second Department agreed that GEICO had failed to prove that the change endorsement was mailed to the policyholder prior to the accident:

The Supreme Court properly concluded that the petitioner failed to meet its burden of proving that an insurance policy endorsement dated October 21, 2005, which purportedly reduced the limits applicable to the uninsured/underinsured motorist endorsement of the relevant policy to the sums of $25,000 per person and $50,000 per accident, was properly mailed to the policy holder prior to the date of the subject accident. The underwriter who testified at the hearing failed to offer "evidence of an office [procedure] geared to insure the likelihood that [the endorsements are] always properly addressed and mailed" (Federal Ins. Co. v Kimbrough, 116 AD2d 692, 692; see Nassau Ins. Co. v Murray, 46 NY2d 828, 829-830; Matter of Transcontinental Ins. Co. v Gibbs, 34 AD3d 488; New York & Presbyt. Hosp. v Allstate Ins. Co., 29 AD3d 547; Lumbermens Mut. Cas. Co. v Gamble, 250 AD2d 540; Matter of Allstate Ins. Co. v Ramirez, 208 AD2d 828, 830; Sea Ins. Co. v Kopsky, 137 AD2d 804; Anzalone v State Farm Mut. Ins. Co., 92 AD2d 238; cf. Kaufmann v Leatherstocking Coop. Ins. Co., 52 AD3d 1010, 1012; Morales v Yaghoobian, 13 AD3d 424, 425; Matter of Metlife Auto & Home v Pennella, 10 AD3d 726).

The Elasticity of Timely Notice -- Insured's One-Year Delay in Providing Notice of SUM Claim Found Reasonable

AUTO – SUM – LATE NOTICE – REASONABLE EXCUSE FOR DELAY
Matter of Progressive Northeastern Ins. Co. v. McBride
(2nd Dept., decided 8/18/2009)

Claimant did not notify his auto insurer of his supplementary uninsured motorists (SUM) coverage claim until approximately one year after the accident in which he allegedly was injured.  Progressive denied SUM coverage based on the claimant's late notice, and the claimant demanded arbitration.  Progressive commenced this special proceeding to stay that arbitration, and Supreme Queens denied Progressive's petition.

In AFFIRMING the lower court's judgment which denied that part of Progressive's petition that had sought a permanent stay of the SUM arbitration, the Second Department, Appellate Division, held:

In the context of supplemental uninsured/underinsured motorist (hereinafter SUM) claims, it is the claimant's burden to prove timeliness of notice, which is measured by the date the claimant knew or should have known that the tortfeasor was underinsured (see Matter of Metropolitan Prop. & Cas. Ins. Co. v Mancuso, 93 NY2d 487, 495; Matter of Assurance Co. of Am. v Delgrosso, 38 AD3d 649; Matter of State Farm Mut. Auto. Ins. Co. v Linero, 13 AD3d 546; Matter of Continental Ins. Co. v Marshall, 12 AD3d 508; State Farm Mut. Auto. Ins. Co. v Sparacio, 297 AD2d 284, 285). Timeliness of notice is an elastic concept, the resolution of which is highly dependent on the particular circumstances (see Matter of Metropolitan Property & Cas. Ins. Co. v Mancuso, 93 NY2d at 494-495; Mighty Midgets v Centennial Ins. Co., 47 NY2d 12, 19; Security Mut. Ins. Co. of N.Y. v Acker-Fitzsimons Corp., 31 NY2d 436, 441; Morris Park Contr. Corp. v National Union Fire Ins. Co. of Pittsburgh, Pa., 33 AD3d 763, 764-765). In determining whether notice was timely, factors to consider include, inter alia, whether the claimant has offered a reasonable excuse for any delay, such as latency of his/her injuries, and evidence of the claimant's due diligence in attempting to establish the insurance status of the other vehicles involved in the accident (see Matter of Metropolitan Property & Cas. Ins. Co. v Mancuso, 93 NY2d at 492-493; Mighty Midgets v Centennial Ins. Co., 47 NY2d at 19-20; Security Mut. Ins. Co. of N.Y. v Acker-Fitzsimons Corp., 31 NY2d at 441; Matter of Blue Ridge Ins. Co. v Cook, 301 AD2d 598, 599; Matter of Allstate Ins. Co. [White], 231 AD2d 950; cf. Matter of Nationwide Mut. Ins. Co. v Wexler, 276 AD2d 490, 491).

Here, the respondent Charles McBride established a reasonable excuse for his nearly one-year delay in notifying his insurer, the petitioner, Progressive Northeastern Insurance Company (hereinafter Progressive). McBride submitted evidence that his counsel sent several written requests to the insurers of the vehicle which struck the taxicab in which he had been a passenger at the time of the accident, and to the insurers of the taxicab, and that in the ensuing 12 months those insurers ignored his requests and/or provided erroneous information on the SUM limits of their respective policies (see Mighty Midgets v Centennial Ins. Co., 47 NY2d at 20-21; Matter of Allstate Ins. Co. [White], 231 AD2d 950; cf. Matter of Travelers Ins. Co. v Cohen, 61 AD3d 768; Matter of Continental Ins. Co. v Marshall, 12 AD3d 508; Matter of State Farm Mut. Auto. Ins. Co. v Bennett, 289 AD2d 496; Matter of Interboro Mut. Indem. Ins. Co. v Sarno, 277 AD2d 454; Matter of American Cas. Ins. Co. v Silverman, 271 AD2d 528; Matter of Nationwide Ins. Co. v Montopoli, 262 AD2d 647). Accordingly, we affirm so much of the judgment as denied that branch of the petition which was to permanently stay the arbitration. 

Several written requests to insurers of vehicles involved for coverage limits information either ignored or incorrectly answered = reasonable excuse for delayed notice of SUM claim. 

Remember that under Chapter 388 of the Laws of 2008, Insurance Law § 3420(d) was amended to add this new subparagraph (1):

(d)(1)(A) This paragraph applies with respect to a liability policy that provides coverage with respect to a claim arising out of the death or bodily injury of any person, where the policy is: (i) subject to section three thousand four hundred twenty-five of this article, other than an excess liability or umbrella policy; or (ii) used to satisfy a financial responsibility requirement imposed by law or regulation.

(B) Upon an insurer's receipt of a written request by an injured person who has filed a claim or by another claimant, an insurer shall, within sixty days of receipt of the written request: (i) confirm to the injured person or other claimant in writing whether the insured had a liability insurance policy of the type specified in subparagraph (A) of this paragraph in effect with the insurer on the date of the alleged occurrence; and (ii) specify the liability insurance limits of the coverage provided under the policy.

(C) If the injured person or other claimant fails to provide sufficient identifying information to allow the insurer, in the exercise of reasonable diligence, to identify a liability insurance policy that may be relevant to the claim, the insurer shall within forty-five days of receipt of the written request, so advise the injured person or other claimant in writing and identify for the injured person or other claimant the additional information needed. Within forty-five days of receipt of the additional information, the insurer shall provide the information required under subparagraph (B) of this paragraph.

 If a liability insurer is not complying with this statutory mandate to provide coverage limits information in a timely fashion, a claimant ostensibly could complain to the New York State Insurance Department and obtain that information.  This new statutory requirement should make it easier for claimants to obtain the necessary insurance information and put their SUM insurers on notice of a SUM claim in a timely fashion.