New York Court of Appeals Affirms Trigger of SUM Coverage

Posted on June 4, 2009 by Kevin Merriman

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.”
 
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"Serious Injury" Exclusion in NY SUM Endorsement Enforceable

Posted on November 15, 2007 by Kevin Merriman
In a much anticipated decision, the New York Court of Appeals has resolved a conflict between NY Ins. Law §3420(f)(2), which does not expressly impose a “serious injury” requirement as a condition to recovery of un/underinsured motorist (SUM) benefits, and Insurance Department Regulation 35-D, which does. In Raffellini v. State Farm Mut. Auto. Ins. Co. (NY Nov. 15, 2007), the court held that the serious injury requirement of Regulation 35-D is enforceable, and that the exclusion in State Farm’s SUM endorsement was for that reason enforceable. 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.”
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