Insurance Litigation Lawyer & Attorney : National Insurance Law Forum : Insurance Coverage, Bad Faith Litigation

The claim arose from back injuries sustained by plaintiff when his vehicle was struck by a negligent underinsured driver. After receiving no-fault benefits, and settling with the negligent driver, plaintiff sought benefits under the SUM benefits of his own policy. State Farm denied the claim on the ground that plaintiff failed to sustain “serious injury,” as defined by New York’s No-Fault Law.

Though §3420(f)(2), which provides for SUM benefits, does not state that “serious injury” is a condition precedent to recovery, State Farm maintained that §3420(f)(2) must be read in conjunction with §3420(f)(1), the statute mandating UM coverage, which does contain the requirement, and Insurance Department Regulation 35-D, which also requires “serious injury” as a condition of recovery.

Section 3420(f)(1) mandates UM coverage in every New York auto liability policy. Under that section, payment of benefits is conditioned on a finding that the insured suffered a “serious injury,” as defined in Ins. Law §5102(d). Section 3420(f)(2) provides for additional SUM benefits, but is silent whether “serious injury” must be shown to receive benefits. Regulation 35-D, promulgated by the Insurance Department to interpret the statue, sets forth the language insurers are required to use in the SUM endorsement, including an exclusion that provides: “This SUM coverage does not apply … for non-economic loss, resulting from bodily injury to an insured and arising from an accident in New York State, unless the insured has sustained serious injury as defined in Section 5102(d) of the New York Insurance Law.” State Farm’s SUM endorsement conformed to Regulation 35-D.

The court held that the exclusion was enforceable, reasoning that the Insurance Department was authorized by the Legislature to prescribe rules and regulations to fill in legislative gaps, provided it does not go beyond the text of the legislation. In this case, the court found the statute and regulation were not contradictory. The court reasoned that the statute “is silent on the issue of whether an insured can recover SUM benefits absent a serious injury and that silence does not, in this case, imply that the Legislature intended to permit such recovery.”

The court reviewed the complicated history of the statutory provisions, which were once contained in the same section of the statute, and concluded that this construction was consistent with legislative intent. In the court’s view, “[t]here was no indication in the legislative history of the amendment that the Legislature decided to apply a serious injury exclusion solely to mandatory coverage and not to supplementary benefits.”

The court concluded its holding was also consistent with the purpose underlying SUM benefits. “Since the purpose of supplementary coverage is to extend to the insured the same level of coverage provided to an injured third party under the policy, the insured must also meet the serious injury requirement before entitlement to supplementary benefits. If this were not the case, the insured would receive coverage more comprehensive than that available to a third party injured by the insured.”