New York Court of Appeals Affirms Trigger of SUM Coverage
In a 5-2 decision, the New York Court of Appeals held in Matter of Allstate Insurance Company, 2009 N.Y. Slip Op. 04300 (June 4, 2009) that Supplemental Uninsured/Underinsured Motorists (“SUM”) coverage is not triggered where payments to multiple insureds reduces the liability limits of the tortfeasor’s policy. Thus, SUM benefits were unavailable to co-occupants of a covered vehicle.
In companion cases, Matter of Allstate Insurance Company v. Rivera and Matter of Clarendon National Insurance Company v. Nunez, insurers issued auto policies with liability limits equal to that of the tortfeasors’ liability policies. After paying the liability limits to the injured driver and co-occupants of the covered vehicles, co-occupants sought SUM coverage under the drivers’ policies. Insurers denied the claims, arguing that the SUM coverage was not triggered. SUM claimants argued that each should be allowed to deduct the payments made to other co-occupants, thereby reducing the tortfeasor's liability coverage to an amount less than the coverage limits on their vehicle, triggering SUM coverage.
The Court disagreed, reasoning that the provision for SUM coverage under section 3420(f)(2)(A) of New York’s Insurance Law, enacted to allow policyholders to acquire the same level of protection for themselves and their passengers as they purchased to protect themselves against liability to others, is only triggered when the liability limit of the policy covering the tortfeasor's vehicle is less than the third-party liability limit of the policy under which a party is seeking SUM benefits. The Court explained that the “statute calls for a facial comparison of the limits without reduction from the judgment of other claims arising from the accident.”
New York Insurance Department Regulation 35-D (“Regulation 35-D”) (codified at 11 NYCRR § 60-2) did not support a contrary result. The Court observed that Regulation 35-D, which prescribes the terms of the SUM endorsement, defines an “uninsured motor vehicle” as:
“a motor vehicle that, through its ownership, maintenance or use, results in bodily injury to an insured, and for which . . . there is a bodily injury liability insurance coverage or bond applicable to such motor vehicle at the time of the accident, but . . . the amount of such insurance coverage or bond has been reduced, by payments to other persons injured in the accident, to an amount less than the third-party bodily injury liability limit of this policy.”
11 NYCRR § 60-2 (emphasis added).
The term “insured” includes “any other person while occupying: (i) a motor vehicle insured for SUM under this policy ….”
The Court held that the “payments to other persons” that may be deducted from the tortfeasor’s coverage limits for purposes of rendering the tortfeasor “uninsured” under the SUM endorsement do not encompass payments made to insureds under the endorsement, a result that in the Court’s view is consistent with the statutory purpose of SUM coverage to guarantee “that those who have purchased SUM coverage will receive the same recovery they have made available to third parties they injure — but no more.”
In dissent, Judge Ciparick concluded that claimants meet the stated criteria for SUM coverage under Regulation 35-D, as they are "other persons injured in the accident." Since the regulation does not limit or qualify the phrase “other persons,” and does not exclude as “other persons” a passenger of the covered vehicle, co-occupants should qualify for benefits. Indeed, the dissent reasoned, “[t]he majority's rendering of an artificial and strained distinction between co-vehicle occupants and strangers to the insured vehicle in the definition of ‘other persons injured in the accident’ is unwarranted and inconsistent with the plain language of the regulation as incorporated into these insurance policies.”
