Maine Court Holds That Emotional Distress Claims Trigger Additional BI Limits

Posted on December 23, 2007 by Mike Aylward

Thank goodness that Maine is a relatively small state, as its Law Court seems to have a boundless appetite for finding insurance coverage.

In the latest defeat for insurers, the court ruled in Ryder v. USAA General Indemnity Co., 2007 ME 146 (Me. December 6, 2007) that an auto insurer must pay an additional $50,000 "per person" UIM limit for the emotional distress that various family members suffered when the insured was struck and killed by another car as she got out of the insured vehicle.   The trial court had ruled that USAA owed only a single $50,000 limit, as the emotional distress claims were not a separate "bodily injury."  On appeal, however, the Law Court concluded that the USAA definition of "bodily injury" ("bodily harm, sickness, disease or death") was ambiguous.  The court held that the general rule that an adjective modified not only the noun next to it but all other nouns in the same sequence did not apply here, since there is no such thing as a "bodily death" (the justices plainly had no familiarity with flying on U.S.. Airways).   As a result, the court ruled that emotional distress is a "sickness" or "disease" and required the insurer to pay three additional limits for the by-standards claims.

The court's ruling highlights the significance of small variations in policy language.  The court made much of the fact that the USAA policy was different from the conventional ISO wordings (ie.  "bodily injury, sickness or disease, including death resulting at any time therefrom).  Also, USAA's position in this case was not aided by the fact that the tortfeasor's policy with Northern Progressive contained an unusual definition of "bodily injury" that explicitly made by-standers claims subject to the limit of coverage available for bodily injury claims.

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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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