Coverage Pointers - Volume V, No. 14
FDCC LITIGATION MANAGEMENT COLLEGE
We are pleased to advise you of two superb educational programs available for claims professionals: The 10th Annual FDCC Litigation Management College and the Graduate Program of the FDCC Litigation Management College, and urge you to consider attendance. You can find additional information and brochures for these two programs, as well as online registration, at the FDCC website: www.thefederation.org.
The 10th Annual FDCC Litigation Management College is being held at the J. L. Kellogg Graduate School of Management, Northwestern University in Evanston, Illinois, May 24 - 28, 2004. It is a program designed exclusively for the Claim Professional to enhance litigation management and negotiation skills. The Litigation Management College is sponsored by the Federation of Defense & Corporate Counsel as a service to claim professionals from the insurance industry and self-insureds organizations. The target group for the College is claim professionals with three to twelve years claims and/or litigation management experience. The college consists of an intensive five-day series of workshops and participatory, interactive educational experiences. It provides a unique opportunity for claim professionals to meet, study, and discuss issues of common interest with the focus on the increasingly important area of litigation management. The curriculum is designed to provide a practical approach to litigation management. Everyone who attends should leave with new and enhanced skills to improve the work of litigation management.
The Graduate Program of the FDCC Litigation Management College is being held at the J. L. Kellogg Graduate School of Management, Northwestern University in Evanston, Illinois, May 24 - 26, 2004. In response to the demand in the insurance industry for advanced skills training in litigation management, nine years ago the Federation of Defense & Corporate Counsel began an annual five-day intensive course devoted to the advanced study of litigation management. In response to the overwhelming success of the Litigation Management College and also requests from Alumni, the FDCC is pleased to offer its Graduate Program to the Alumni of the Litigation Management College, as well as to any students certified by their employers to have company experience equivalent to the rigors of the College to satisfy the admission prerequisite. The purpose of the Graduate Program is to build on the solid foundation provided by the Litigation Management College to refine the student’s understanding of advanced coverage issues, strategic litigation tactics, and alternatives for resolution of disputes on favorable terms, while gaining further understanding of the process to allow application of these skills to any litigation challenge that may arise on the job in a cost-effective.
Dan Kohane has served on the faculty of the Litigation Management College for the past five years, and is now involved in the planning of the Graduate Program. If you have any questions about either of these programs, please call him at 716-849-8942.
02/11/04 BROWN v TRAVELERS INS. CO.
New York State Supreme Court, Appellate Division, Fourth Department
Sixteen-Month Delay in Providing Notice of SUM Claim Deemed Unreasonable
Plaintiff was injured in an auto accident on June 20, 1999. On February 9, 2000, she commenced a negligence action against the owner and operator of the other vehicle involved in the accident, alleging that, as a result of the accident, she sustained “serious injury” pursuant to multiple categories under Insurance Law §5102(d). On October 19, 2000, plaintiff’s attorney was informed that the alleged tortfeasor’s liability insurance coverage was limited to $25,000. On June 20, 2001, plaintiff’s treating physician testified at a deposition that plaintiff’s back injury “is now a permanent injury.” The treating physician further testified that he had first treated plaintiff for the injuries sustained in the accident on July 21, 1999, and that, in his opinion, plaintiff was “totally disabled” at that visit and at every visit thereafter. On June 18, 2001, plaintiff’s attorney notified defendant for the first time of plaintiff’s potential SUM claim. Plaintiff’s auto policy required that she provide written notice of a SUM claim “[a]s soon as practicable,” which the Court of Appeals has defined as notice “with reasonable promptness after the insured knew or should reasonably have known that the tortfeasor was underinsured.” Court held that plaintiff knew or should have known that her injuries were “serious” no later than the date on which she commenced the underlying negligence action in February 2000. At that point, she was required to exercise due diligence in ascertaining the amount of the alleged tortfeasor’s liability insurance limits and to notify defendant of her SUM claim “with reasonable promptness” thereafter. Plaintiff failed to provide a notice of claim until 16 months after “proclaim[ing] [her] injuries as ‘serious’”, and eight months after she ascertained the amount of the alleged tortfeasor’s policy limits. The court rejected plaintiff’s contention that her delay should be excused because she was not “reasonably certain” that she sustained a serious injury until June 2001--her physician testified that her injury was totally disabling from the first date of his treatment, and plaintiff commenced the action alleging that she had sustained a serious injury in February 2000. The notice of claim for SUM benefits was thus untimely as a matter of law.
02/02/04 MATTER OF EAGLE INS. CO. v HAMILTON
New York State Supreme Court, Appellate Division, Second Department
Insured Not entitled to UM
Benefits When Tortfeasor’s Carrier Insolvent, but Paid into PMV Fund; Recourse
is Against PMV Fund
Hamilton was allegedly injured in a motor vehicle accident involving Lazard. At the time, Hamilton was insured by Eagle Insurance Company. Hamilton’s policy with Eagle provided compulsory uninsured motorist coverage (UM); however, Hamilton did not purchase supplemental uninsured motorist coverage (SUM). Lazard was insured by Reliance National Indemnity Company. After commencing an action against Lazard, Hamilton learned that Reliance had been declared insolvent and that its New York assets were in receivership and being liquidated by the Superintendent of the Insurance Department. Accordingly, Hamilton sent a letter to Reliance via the Superintendent requesting that it appear in the action on behalf of Lazard. In response, Hamilton was sent a copy of a letter sent to Lazard by the Superintendent stating that, although Hamilton’s claim against Lazard was “covered by the New York Public Motor Vehicle Liability Security Fund … [a]t this time, the PMV Fund is unable to provide either a defense to or indemnification of this claim insofar as the PMV Fund is financially strained.” Thereafter, Hamilton made a demand upon Eagle for arbitration of a claim for UM benefits pursuant to his policy. Eagle commenced this proceeding for a permanent stay of arbitration, arguing that Lazard’s vehicle was not uninsured at the time of the accident, but rather, was insured by Reliance. In opposition, Hamilton argued that Reliance’s insolvency triggered UM benefits, relying on Insurance Law § 3420(f) (2) and Regulation 35-D. In reply, Eagle argued that Insurance Law § 3420(f) (2) and Regulation 35-D were not applicable, as they applied to SUM coverage only, which Hamilton did not purchase. Rather, Eagle asserted, the UM coverage provided to Hamilton was governed by Insurance Law § 3420(f) (1), which was triggered when “the insurer disclaims liability or denies coverage.” Here, Eagle argued, Reliance neither disclaimed liability nor denied coverage, but rather was insolvent, which did not trigger UM coverage. Court held that where an injured policy holder is entitled to UM coverage but not SUM coverage from his or her own insurer, and the alleged tortfeasor’s insurer has paid into the PMV fund but has been declared insolvent after the underlying accident, the injured policyholder's recourse is not against his or her own insurer for UM coverage, but against the PMV fund via the Superintendent pursuant to Insurance Law article 74.
02/05/04 MACK v STATE FARM
New York State Supreme Court, County of Erie
Class Action Dismissed where Two Claims Deemed Non-justiciable and Policy Adequately Describes Available APIP Coverage
In a class action commenced against State Farm by several New York policyholders for judgment concerning the benefits available under its additional personal injury protection (APIP) endorsement, the court held that two of the claims were not ripe for adjudication, as those claimants had yet to make a claim for APIP benefits. As for the remaining claims, the court found that the declarations pages, which set forth (1) the limit of each coverage and the itemized premium cost of each; (2) total No-Fault coverage limits showing the aggregate limit of No-Fault benefits available under the policies; and, (3) the maximum monthly work loss, other necessary expense per diem benefit and death benefit, fully complied with the requirements of the Insurance Law and regulations. The court also concluded there were no ambiguities in the declarations pages and APIP endorsement concerning the level of benefits available under the policies. The case was dismissed accordingly.
Visit the HOT CASES section of the Federation of Defense and Corporate Counsel website, recently ranked among the top five legal research websites in an article published in the January 2004 issue of Litigation News, a publication of the Litigation Section of the American Bar Association. Dan Kohane serves as the Fact’s Website Editor.
02/12/04 KNOTS v ZAIC
Kentucky Court of Appeals
Actions in the Course of Claims Practices No Longer Apply Once Litigation Commences
The Court of Appeals of Kentucky has affirmed a trial court decision where the issue was whether fair claims practices standards apply once litigation ensues. The court joined other states that have considered the issue and held that, once litigation ensues, the standards found in the unfair claims practices statute of Kentucky no longer control. This claim arose under a policy written for Alusuisse. The claimant was an independent contractor. His injury arose out of his own negligence and the negligence of another non-insured party, but a trial court ultimately found against our insured. The verdict was affirmed on appeal. The claimant subsequently filed a bad faith suit against Zurich, alleging the carrier had failed to promptly pay his claim when liability was reasonably certain, in violation of the Kentucky Unfair Claims Settlement Practices Act. However, the claimant filed suit barely two months after the date of the accident, and only a month after it got notice of the claim. The court found that legislative intent was to regulate claims practices and to apply to litigation.
Daina Kojelis, Zurich Insurance
Maryland Court of Appeals
"Pizza Exclusion" Invalid: Insurers May Not Deny Coverage for Insured Driver Delivering Property for Compensation
Contractual exclusions to personal automobile insurance policies that excuse or reduce benefits below the minimum levels set by statute are invalid unless they are expressly authorized by the General Assembly. A “pizza exclusion,” which allows an insurer to deny coverage if an insured driver was delivering property for compensation at the time of the accident, has not been authorized by the Legislature, and is therefore invalid.
Kim Baker and Michelle Garzon, Williams, Kastner & Gibbs, PLLC
02/09/04 THOMPSON v MARYLAND CASUALTY
Colorado Supreme Court
Insurance—Interpretation of Insurance Policy—Duty to Defend—Exclusion from Coverage—Malicious Prosecution—Lis Pendens—Disparagement—Services—Knowledge of Falsity
In this duty to defend insurance case, the Supreme Court holds that claims covered by an insurance policy must be construed as legal claims rather than lay terms. Further, the Supreme Court holds that an insurer has no duty to defend its insured against a claim of malicious prosecution, where the underlying complaint failed to allege that the insured’s wrongful filing of a notice of lis pendens was resolved in favor of the plaintiff. Additionally, the Supreme Court holds that an underlying complaint properly alleged the elements of a claim for disparagement of services where the complaint alleged that the insured interfered with the plaintiff’s ability to develop and sell real property. However, the Supreme Court holds that in this case, the insurers had no duty to defend against the disparagement claim because the policy’s knowledge-of-falsity exclusion provision was triggered by allegations in the underlying complaint that the insured knew its disparaging statement was false.
Court of Appeals of Ohio
Attorney Fees Constitute Damages as Defined by Errors & Omissions Policy
A city sued for violations of Ohio’s Public Records Act, Ohio’s Open Meeting Law, and wasting and mishandling township funds made a claim under its public officials errors and omissions liability insurance policy. The insurer denied coverage, arguing that the relief sought, including injunctive relief, a writ of mandamus, damages, costs, and reasonable attorney fees, did not constitute damages as defined by the policy. The trial court ordered the city to pay reasonable attorney fees in the suit. The court of appeals held that attorney fees were “monetary damages,” and therefore the insurer had a duty to defend and indemnify the city.
Bruce D. Celebrezze and Erin Adrian, Sedgwick, Detert, Moran & Arnold LLP
Florida Court of Appeal
Claims for Bad Faith or Unfair Claim Settlement Practices May Only Be Brought After Coverage and Contractual Issues Are Resolved
Insured entered into a contract to renovate a building, procuring a builder’s risk insurance policy for the project. When a fire occurred, the insurer took the position that the builder’s risk policy only covered damages to the interior improvements, not damages to the exterior of the existing building. The insured filed suit seeking declaratory relief, damages for breach of contract, and damages for bad faith dealings and unfair claim settlement practices. The trial court dismissed the count for bad faith dealings, but not unfair claims settlement practices. On appeal, the court held that there must be a determination regarding coverage and contractual issues between the insured and the insurer before an action for bad faith or unfair settlement practices can accrue. Thus, the trial court properly dismissed the bad faith claim, and should have also dismissed the claim for unfair settlement practices.
Bruce D. Celebrezze and Erin Adrian, Sedgwick, Detert, Moran & Arnold LLP
Courts Should Use Local Law to Interpret Insurance Policy Absent Citation to Relevant International Law by Party Arguing for Interpretation under International Law
Frit Industries, an Alabama corporation that manufactures micronutrients for fertilizers, was insured by a cooperative of off- shore insurance companies. When they were sued in a products liability action, they gave notice to these insurers. The court determined that, under Alabama law, the insurers had a duty to defend Frit in the action. The insurers argued that, because the shareholder agreement for the insurance cooperative provided that it was governed by the law of the Cayman Islands, the insurance policy should be interpreted by the law of the Cayman Islands, not Alabama law. The Court of Appeals held that, because the insurers did not cite any Cayman Islands law in their motion for summary judgment, but rather cited Alabama law, the court need not have done independent research as to the applicable Cayman Island law, and was correct in applying Alabama law.
Bruce D. Celebrezze and Erin Adrian, Sedgwick, Detert, Moran & Arnold LLP
Tenth Circuit (applying Colorado law)
Service Manager of Auto-Dealership Driving a Loaner Considered a "Permissive User" as Defined Under Colorado Law for Purposes of Liability Coverage
This case concerns a dispute between two automobile-liability insurance carriers regarding coverage for Lloyd Nelson, a service manager for Murray Motor’s. One evening in 1997, Mr. Nelson drove a loaner vehicle off the lot when he left for the evening, and on his way home collided with another vehicle, causing damage to both. Allstate Insurance Company issued a personal policy for Mr. Nelson. American Hardware Mutual Insurance issued a policy for Murray Motor. Under both policies, coverage of the accident hinged on whether Mr. Nelson was a permissive user of the loaner vehicle. At the trial and initial appellate levels, both insurance companies refused coverage, claiming that Mr. Nelson was not a permissive user of the loaner vehicle. Ultimately on appeal, the United States Court of Appeals for the Tenth Circuit held that under the Colorado initial-permission rule, Mr. Nelson was a permissive user. As a result, American Hardware was the primary insurer for the accident and was required to reimburse Allstate for its payments and expenses arising out of the accident.
Mark Gesk, Wayman, Irvin, McAuley
When There's a Will, There's a Way
Plaintiff's life insurance policy allowed for a will to serve as a valid beneficiary designation, and decedent's will was the last beneficiary designation he executed. Accordingly, allocation of benefits between decedent's widow and four children was proper.
Florida Appeals Court
In Windstorm Claims, Deductible Applied Only to Covered Loss, Not Non-Covered Loss
For the purpose of determining the extent of the insurer's obligation to pay the insured for loss to covered property under the policy of insurance, amount of the deductible is be applied only to covered loss not non-covered loss under the policy.
Janet L. Brown, Boehm, Brown, Fischer & Harwood
New Hampshire Supreme Court
Insurance Coverage May Be Stacked for Purposes of Determining the Available Limits of Underinsured Motorist Coverage
Claimant was involved in a motor vehicle accident while a passenger in a vehicle owned and operated by his mother. The owner of the other vehicle involved in the accident was at fault. The party at fault had an automobile insurance policy with $20,000 in liability coverage. The claimant’s mother had a Massachusetts personal automobile policy issued by Holyoke that included underinsured benefits of $20,000. Claimant had a New Hampshire personal automobile policy issued by State Farm that included underinsured benefits of $100,000. Claimant collected the full amount of the policy of the party at fault. Claiming that his injuries exceeded that $20,000 coverage, he sought underinsured benefits from his insurer, State Farm. State Farm brought a petition for declaratory judgment seeking a determination that Holyoke was obligated to provide underinsured coverage to claimant. State Farm argued that its underinsured coverage should be stacked upon Holyoke’s to permit recovery under both policies, and that its coverage was excess to Holyoke’s. Holyoke argued that no underinsured benefits were due under its policy and that both its policy and Massachusetts law prohibited stacking. Upon motions for summary judgment, the Superior Court ruled that Holyoke was the primary insurer for underinsured motorist coverage. The court ruled that the Massachusetts anti- stacking statute did not apply in a situation where an out-of-state insurer provides coverage to the injured party as a named insured. On appeal, the Supreme Court affirmed the lower court decision and held that State Farm’s coverage may be stacked upon Holyoke’s for purposes of determining the available limits of underinsured motorist coverage.
Mark Gesk, Wayman, Irvin, McAuley
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MATTER OF EAGLE INS. CO. v HAMILTON
In a proceeding pursuant to CPLR article 75 to
permanently stay arbitration of a claim for uninsured motorist benefits, the
petitioner appeals from an order of the Supreme Court, Kings County (Schneier,
J.), dated October 17, 2002, which denied the petition and dismissed the
ORDERED that the order is reversed, on the law, without costs or disbursements, and the matter is remitted to the Supreme Court, Kings County, for further proceedings consistent herewith; and it is further,
ORDERED that the petitioner shall serve a supplemental notice of petition (see CPLR 305[a]) and amended petition (see CPLR 3025[b]) upon the Superintendent of the New York State Insurance Department, joining him as an additional respondent to the proceeding within 30 days of service upon him of a copy of this decision and order.
In July 1998 the respondent, Neville Hamilton, allegedly was injured in a motor vehicle accident involving the proposed additional respondent Jean R. Lazard. At the time, Hamilton was insured by the petitioner, Eagle Insurance Company (hereinafter Eagle). Hamilton's policy with Eagle provided compulsory uninsured motorist coverage (hereinafter UM coverage) (see Insurance Law § 3420[f]). However, Hamilton did not purchase supplemental uninsured motorist coverage (hereinafter SUM coverage) from Eagle (see Insurance Law § 3420[f]; 11 NYCRR 60-2). Lazard was insured by the proposed additional respondent Reliance National Indemnity Company (hereinafter Reliance), a Pennsylvania company authorized to sell insurance in New York. After commencing an action against Lazard, Hamilton learned that Lazard's insurer, Reliance, had been declared insolvent and that its New York assets were in receivership and being liquidated by the Superintendent of the New York State Insurance Department (hereinafter the Superintendent) pursuant to Insurance Law article 74. Accordingly, Hamilton sent a letter to Reliance via the Superintendent requesting that it appear in the action on behalf of Lazard. In response, Hamilton was sent a copy of a letter sent to Lazard by the Superintendent stating that, although Hamilton's claim against Lazard was "covered by the New York Public Motor Vehicle Liability Security Fund [hereinafter the PMV Fund] * * * [a]t this time, the PMV Fund is unable to provide either a defense to or indemnification of this claim insofar as the PMV Fund is financially strained." Thereafter, Hamilton made a demand upon his own insurance company, Eagle, for arbitration of a claim for uninsured motorist benefits pursuant to his policy with Eagle.
Eagle commenced this proceeding for a permanent stay of arbitration, arguing that the record revealed that Lazard's vehicle was not uninsured at the time of the accident, but rather, was insured by Reliance. In opposition, Hamilton argued that Reliance's insolvency triggered UM benefits, relying on Insurance Law § 3420(f)(2) and Regulation 35-D, specifically 11 NYCRR 60-2.3(f). In reply, Eagle argued that Insurance Law § 3420(f)(2) and Regulation 35-D were not applicable, as they applied to SUM coverage only, which Hamilton did not purchase. Rather, Eagle asserted, the UM coverage provided to Hamilton was governed by Insurance Law § 3420(f)(1), which was triggered, inter alia, when "the insurer disclaims liability or denies coverage." Here, Eagle argued, Reliance neither disclaimed liability nor denied coverage, but rather was insolvent, which did not trigger UM coverage. The Supreme Court, finding that the Lazard vehicle qualified as an uninsured vehicle for purposes of Insurance Law § 3420(f)(1), denied a stay of arbitration. We reverse and remit the matter for further proceedings.
The issues raised on this appeal implicate the interplay among various statutes, regulations, and case law related to UM coverage. Insurance Law § 3420(f)(1) mandates that all policies issued or delivered in this state insuring against loss for bodily injury or death arising from a motor vehicle accident must contain a provision providing for UM coverage. Such compulsory UM coverage is triggered, inter alia, where an insured is entitled to recover damages from an insured motor vehicle but "the insurer disclaims liability or denies coverage." Insurance Law § 3420(f)(2) requires an insurer to provide, at the option of the insured, the right to purchase supplementary SUM coverage. The regulations promulgated by the Superintendent concerning SUM coverage, generally referred to as Regulation 35-D, provide that such coverage is triggered, inter alia, by the "insolvency" of the alleged tortfeasor's insurer (see 11 NYCRR 60.23[f][[c][iii]). Since 1958, the Legislature has also provided for a fund, currently known as the PMV fund, pursuant to article 76 of the Insurance Law. The PMV fund provides coverage for, inter alia, allowed claims of injured parties that remain unpaid, in whole or in part, due to the insolvency of an insurer (see Insurance Law § 7604). A claim to the fund is made with the Superintendent pursuant to Article 74 of the Insurance Law (see Insurance Law art 74; see also Insurance Law §§ 7607, 7608).
In 1977, before the promulgation of Regulation 35-D (which concerns SUM coverage), the Court of Appeals decided State-Wide Ins. Co. v Curry (43 NY2d 298). In State-Wide, the appellant Virginia Curry was injured in a motor vehicle accident. After the accident, the insurer of the alleged tortfeasor's vehicle was declared insolvent and placed in liquidation. Curry proceeded against her own insurer, State-Wide Insurance Co. (hereinafter State-Wide), seeking UM coverage. State-Wide argued that Curry's remedy was against the PMV fund. Curry argued that the insolvency of the tortfeasor's insurer provided her with option of pursuing either the PMV fund or State-Wide. The Court of Appeals held that, on the facts presented, the insolvency of the alleged tortfeasor's insurer did not provide Curry with such an option. Rather, the Court held, the statutory coverage mandated by then Insurance Law § 167(2-a) (currently Insurance Law § 3420[f]] i.e., UM coverage) "presupposes that no other liability coverage exists to compensate innocent victims of motor vehicle accidents" (id. at 302). In the case before it, the Court noted, there was such other coverage, i.e., the PMV fund. Thus, the Court held, "there [was] no need to protect such injured person under the Indemnification Endorsement [UM coverage], since compensation is otherwise available" (id.; see also Matter of Union Indem. Ins. Co. of New York, 92 NY2d 107, 113). Furthermore, the State-Wide Court noted, the language of then-subdivision 2-a of Insurance Law § 167 [currently Insurance Law § 3420(f)(1) was triggered "where the insurer disclaims liability or denies coverage" (State Wide Ins. v Curry, supra at 303). The Court held that the insolvent insurer fit "neither of these categories" (id. at 303). Rather, while that insurer had become insolvent after the accident, "the insurance policy itself survived, and the obligations owed its insured were assumed by the [PMV fund]" (id. at 303). Thus, the Court concluded, the alleged tortfeasor's vehicle "was neither 'an uninsured motor vehicle' nor 'an insured vehicle where the insurer disclaim[ed] liability or denie[d] coverage' within the meaning of subdivision 2-a of section 167 of the Insurance Law [currently Insurance Law § 3420[f]]"(id. at 303).
The Court of Appeals found its conclusion bolstered by the legislative history of Insurance Law § 167, the purpose of which was to "'close the gaps * * * with respect to assuring payment of compensation to innocent victims of motor vehicle accidents'" (id. quoting NY Legis Ann, 1958, p 299). The Court held that "surely the Legislature did not intend to provide another remedy for those insured by insolvent domestic insurers, where, due to [the PMV fund], no gap had existed as to assuring compensation to such victims for many years" (id.). Finally, the State-Wide Court noted, the Appellate Divisions, First and Third Departments, when confronted with similar issues, had arrived at a different interpretation of Insurance Law § 167. In Matter of Taub (MVAIC) (31 AD2d 378), the Appellate Division, First Department, held that the insolvency of the alleged tortfeasor's insurer after the underlying accident "was tantamount to a disclaimer of liability, or denial of coverage." In Matter of Travis (General Acc. Group) (31 AD2d 20), the Appellate Division, Third Department, reached a "like result" when the alleged tortfeasor's insurer was declared insolvent prior to the accident. The State-Wide Court held that while both cases "expressed an overly broad interpretation of subdivision 2-a of section 167," both were correctly decided on their facts because in each case the alleged tortfeasor's insurer had not been licensed to do business in New York and, therefore, had not contributed to the PMV fund (State Wide Ins. v Curry, supra at 304). Thus, payment from the PMV fund was not available.
The distinction to be drawn between UM coverage and SUM coverage, in light of the language of the various statutes and regulations, and implied by the decision in State-Wide, was made manifest in a decision of this court after the enactment of Regulation 35-D, dealing with SUM coverage. In American Mfrs. Mut. Ins. Co. v Morgan (296 AD2d 491), the alleged tortfeasor's insurer had been declared insolvent after an underlying motor vehicle accident and was in liquidation. The insured, Karen Morgan, who had purchased SUM coverage from her own insurer, the petitioner American Manufacturers Mutual Insurance Company (hereinafter American Manufacturers), filed a claim for such coverage and demanded arbitration. American Manufacturers sought a permanent stay, arguing that because the alleged tortfeasor's insurer had paid into the PMV fund, Morgan's recourse was against the fund. This court held that, given the express language of Regulation 35-D (which expressly references insolvency), and the "greater breadth of SUM coverage," Morgan was entitled to seek SUM coverage from American Manufacturers based on the insolvency of the alleged tortfeasor's insurer, and need not pursue the PMV fund (American Mfrs. Mut. Ins. Co. v Morgan, supra at 494: see Matter of Eagle Ins. Co. v St. Julian, 297 AD2d 737).
In sum, where, as here, an injured policy holder is entitled to UM coverage but not SUM coverage from his or her own insurer, and the alleged tortfeasor's insurer has paid into the PMV fund but has been declared insolvent after the underlying accident, the injured policy holder's recourse is not against his or her own insurer for UM coverage, but against the PMV fund via the Superintendent pursuant to Insurance Law article 74 (see State-Wide Ins. Co. v Curry, supra; Eagle Ins. Co. v St. Julian, supra; Matter of American Mfrs. Mut. Ins. Co. v Morgan, supra). Accordingly, we remit the matter to the Supreme Court, Kings County, so that the Superintendent may be added as an additional respondent and recourse sought against the PMV fund. Given this threshold issue, we need not determine any further issues at this time.
RITTER, J.P., FLORIO, S. MILLER and LUCIANO, JJ., concur.
Appeal from a judgment (denominated order) of the Supreme Court, Onondaga County (Thomas J. Murphy, J.), entered February 25, 2003. The judgment denied plaintiff's motion for summary judgment on the complaint, granted defendant’s cross motion for summary judgment and rendered a declaratory judgment in favor of defendant.
It is hereby ORDERED that the judgment so appealed from be and the same hereby is unanimously affirmed without costs.
Memorandum: Supreme Court properly denied plaintiff’s motion for summary judgment and granted defendant’s cross motion for summary judgment declaring that defendant has no obligation to provide supplemental underinsured motorist (SUM) benefits to plaintiff.
Plaintiff was injured in a motor vehicle accident on June 20, 1999.
On February 9, 2000, she commenced a negligence action against the owner and operator of the other vehicle involved in the accident, alleging that, as a result of the accident, she sustained injuries that were “permanent in nature or constitute [a] significant
limitation of use of a body function or system or a medically determined injury or impairment of a non-permanent nature which prevented the [p]laintiff from performing substantially all of the material acts which constitute her usual and customary daily
activities for not less than ninety days during the one hundred eighty days immediately following the occurrence of the injury or impairment.” On October 19, 2000, plaintiff’s attorney was informed that the alleged tortfeasor’s liability insurance coverage was limited to $25,000. On June 20, 2001, plaintiff’s treating physician testified at a deposition in the underlying negligence action that plaintiff’s back injury “is now a permanent injury.” The treating physician further testified that he had first treated plaintiff for the injuries sustained in the accident on July 21, 1999, and that, in his opinion, plaintiff was “totally disabled” at that visit and at every visit thereafter. On June 18, 2001, plaintiff’s attorney notified defendant for the first time of plaintiff’s potential SUM claim.
Plaintiff’s automobile liability policy with defendant required that plaintiff provide defendant with written notice of a SUM claim “[a]s soon as practicable,” which the Court of Appeals has defined as notice “with reasonable promptness after the insured knew or should reasonably have known that the tortfeasor was underinsured” (Matter of
Metropolitan Prop. & Cas. Ins. Co. v Mancuso, 93 NY2d 487, 495).
Here, plaintiff knew or at the very least should have known that her injuries were “serious” within the meaning of Insurance Law § 5102 (d) no later than the date on which she commenced the underlying negligence action in February 2000 (see id. at 496). At that point, she was required to exercise due diligence in ascertaining the amount of the alleged tortfeasor’s liability insurance policy limits (see Matter of State Farm Mut. Auto. Ins. Co. [Cybulski], 1 AD3d 905; Matter of State Farm Mut. Auto. Ins. Cos. [Proper], 300 AD2d 1095; Matter of New York Cent. Mut. Fire Ins. Co. [Moore], 280 AD2d 923,
924) and to notify defendant of her SUM claim “with reasonable promptness” thereafter (Metropolitan Prop. & Cas. Ins. Co, 93 NY2d at 495). Here, plaintiff failed to provide a notice of claim until 16 months after “proclaim[ing] [her] injuries as ‘serious’” (id. at 496), and eight months after she ascertained the amount of the alleged tortfeasor’s policy limits. The contention of plaintiff that her delay should be excused because she was not “reasonably certain” that she sustained a serious injury until June 2001 is without merit in view of the testimony of her physician that her injury was totally disabling from the first date of his treatment and in view of the fact that plaintiff commenced an action alleging that she had sustained a serious injury in February 2000. The notice of claim for SUM benefits was thus untimely as a matter of law (see id.; Matter of Nationwide Mut. Ins. Co. v DiGregorio, 294 AD2d 579, 580-581; see also Proper, 300 AD2d at 1095-1096).
MACK v STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY
James E. Brown, Esq.
Brown, Chiari, LLP
30 Brunswick Road
Depew, New York 14043
Attorney for Plaintiffs
Daniel Kohane, Esq.
Hurwitz & Fine, P.C.
1300 Liberty Building
Buffalo, New York 14202
Attorney for Defendant
Defendant State Farm Mutual Automobile Insurance Company ("State Farm") has moved pursuant to CPLR 3211 seeking dismissal of Plaintiffs' Complaint. Plaintiffs oppose the motion.
A. Plaintiffs' Complaint.
The action was commenced as a class action for judgment declaring the rights of the parties and members of an alleged undefined class to coverage under State Farm policies issue in New York and, in particular, construction of State Farm's additional personal injury protection endorsement ("APIP Endorsement"). There are four named Plaintiffs herein, each of whom had State Farm policies: Wayne Mack, Cheryl Kotalik, Daniel and Laura Athoe, and Brian Fay. Defendant filed a notice of removal to Federal Court, however, in a Decision and Order by Judge William M. Skretny. Federal Court remanded the case to our court because the Defendant did not establish that the amount in controversy exceeds $75,000. 28 U.S.C. § 1332. (See Decision and Order (02-CY-175) William M. Skretny August 27,2002.)
Fay was involved in a motor vehicle accident on July 29, 1999; his economic losses have exceeded his $50,000 mandatory PIP (personal injury protection) benefits. Fay asserts that he relied upon State Farm's representations relative to an additional $50,000 in APIP coverage, and' that State Farm fraudulently misrepresented the nature of its APIP coverage to him. Athoe's father was insured through State Farm; Athoe was involved in a motor vehicle accident on September 14, 2000, and asserts that she has been denied $50,000 in APIP benefits. Fay and Athoe assert that their claims have been denied by State Farm because the first $50,000 of mandatory benefits received by each insured operates as an offset for APIP coverage. Kotalik was involved in a motor vehicle accident on November 30, 1999. She has not made a claim for medical or lost wages in excess of mandatory PIP. There is no allegation that Mack was involved in a motor vehicle accident nor that he made a claim for benefits under his policy.
The gist of the Plaintiffs' claims is set forth in the complaint, and in particular, paragraph 9 thereof. Plaintiffs allege that pursuant to New York Insurance Law, automobile policies provide for mandatory personal injury protection coverage in the amount of $50,000. Plaintiffs allege that automobile owners may purchase additional personal injury protection (APIP) "where economic losses exceed fifty thousand dollars ($59,000)." The complaint alleges that State Farm sold and issued policies providing $50,000, $100,000 and $150,000 in APIP protection and "that once the mandatory $50,000 in PIP benefits has been exhausted, those insureds who have purchased APIP coverage are entitled to receive additional benefits to the extent of the APIP coverage provided for in the insurance policy." (See Kohane Exhibit A at 9d.) Plaintiffs allege "since at least 1991 to the present, the Defendant has refused to pay to its insureds the first $50,000 of APIP benefits provided for in its automobile insurance policies." (See Kohane Exhibit A at 9e.) The complaint thereafter sets forth the procedural history of Canastraro v. State Farm, a case involving a State Farm insured and her claim to $50,000 for APIP benefits. 256 AD2d 1161 (4th Dept. 1998).
B. State Farm's Motion to Dismiss.
As to the Mack and Kotalik claims, State Farm asserts that there is no actual controversy, that their claims are not ripe, and that they seek an advisory opinion inasmuch as neither has made a claim in excess of the mandatory $50,000 in PIP coverage. There is no allegation that Mack was involved in an accident, sustained injuries, made a claim for APIP benefits or that any amounts are due under his policy. Kotalik was involved in a motor vehicle accident on November 30, 1999, and sustained personal injuries. Kotalik seeks a declaration that, upon presentation of valid claims for future medical and lost wages, the Defendant will be obligated to provide coverage in the amount of $50,000. She has not presented a claim for medical or lost wages in excess of mandatory PIP. We note that, on remand, the federal court used the aforementioned facts as the basis for its finding that Plaintiffs' claims did not meet the amount in controversy threshold for a federal claim. See Decision and Order Mack. et at v. State Farm, (02-CV-1758/26/02).
New York Insurance Law § 5102 requires auto insurance policies to provide coverage for basic economic loss up to $50,000 per person for the named insured and members of the household for accidents occurring in New York. State Farm asserts that any coverage which (a) expands the class of persons who may receive benefits amounts, or (b) provides coverage in excess of $50,000 (overall), or (c) provides more than $2,000 per month in wage loss benefits, or (d) alters geographic limitations (New York) is not coverage for "basic economic loss," but rather additional personal injury protection (APIP) coverage. The Court notes that optional Basic Economic Loss ("OBEL") coverage may be purchased to extend the $50,000 in Basic Economic Loss to $75,000; and the additional $25,000 is to be used only for wage loss or physical and occupational therapy benefits or rehabilitation expenses.
State Farm argues that its policies are consistent with the Insurance Law, statutes and regulations and that it offers APIP coverage to modify the mandatory PIP endorsement, by broadening the benefits in accordance with a schedule of time and dollar limits, subject to the coverage limits set forth in the declarations page. State Farm designates its APIP coverage options as Q1, Q2 and Q3. State Fam1 asserts that each of its policies incorporates the mandatory PIP endorsement as required by New York State Insurance Law § 5103(a), the form set forth in Insurance Reg. 68(11 NYCRR 65.12), and an APIP endorsement proscribed by Insurance Reg. 68 (II NYCRR65.13).
State Farm's APIP endorsement ("Coverage Q") broadens the definition of an "eligible injured person" by geographically augmenting the coverage to include accidents that occur outside of New York State, and provides additional victim coverage if the Ql policy is purchased. If, on the other hand, State Farm's Q2 policy is purchased, there is a monetary extension of the policyholder's basic economic loss coverage in the amount of $50,000, in addition to the aforementioned benefits under a Ql policy. Finally, if a Q3 policy is purchased, the policyholder obtains the extended coverage of the Ql policy and a monetary extension of the basic economic loss coverage in the amount of$100,000. Therefore, according to State Farm, under a Q 1 policy, the APIP endorsement provides no additional monetary coverage, only an expanded definition of "eligible injured person." Plaintiffs assert that this is misleading, at best, arguing that APIP coverage implies a monetary extension of mandatory benefits once the first $50,000 of mandatory PIP benefits have been exhausted.
State Farm asserts that Mack's policy was a Q2 policy providing mandatory PIP ($50,000), OBEL ($25,000), and APIP coverage ($50,000), for total PIP benefits of $125,000. The Kotalik, Athoe and Fay Q 1 policies provide mandatory PIP benefits of $50,000, as well as a geographical extension and additional victim coverage because the Q 1 coverage does not provide a monetary extension of basic economic loss.
c. Canastraro v. State Farm.
Both parties discuss the Fourth Department's decision in Canastraro v. State Farm Mutual Auto Insurance Co., 256 AD2d 1161 (4th Dept. 1998). Canastraro was involved in an accident and exhausted her mandatory $50,000 PIP benefits. State Farm denied her claim for APIP benefits, and she thereafter commenced a declaratory judgment action. The Supreme Court's determination that State Farm’s denial was improper was affirmed by the Appellate Division, Fourth Department, which found that the definition of "extended economic loss'" set forth in State Farm's PIP endorsement (and, in particular, the schedule of coverage) was vague. The court noted, "the additional PIP coverage endorsement, read in the light most favorable to the insured, provides extended economic loss benefits to the maximum of $50,000." Id. Plaintiffs argue that Canastraro is dispositive as to the policies and endorsements, and suggest that the same ambiguities exist in the policies at issue here. Conversely, State Farm asserts that Canastraro is inapplicable because the Canastraro policy differed from the policies at issue here. Alternatively, State Farm repeatedly argues that Canastraro was wrongly decided.
State Farm interprets the Fourth Department's decision in Canastraro as finding that the endorsement was vague as because the schedule referred to in the endorsement's definition of "extended economic loss" was unclear, because it "does not refer to basic economic loss; it contains only what appears on its face to be a computation of extended economic loss, not a recomputation of basic economic loss." (See State Farm Memorandum of Law at Page 21.) Factually, State Farm notes that its policies were re-drafted after the Canastraro policy was issued and after 1991 to comport with Insurance Law and regulatory changes. In the interim, Ins. Law § 5102(a)(5) was amended to require insurance companies to offer an additional $25,000 of PIP coverage (after the first $50,000 of basic economic loss is exhausted) for all policies effective on or after November 12, 1991.
Insurance Department Circular Letter #11 (1992) addresses the requirements for the "No Fault" section of the declarations page. The Letter requires that the declarations page contain a statement of the basic economic loss limits (Mandatory PIP) and, if purchased, OBEL; the maximum amount payable under additional PIP, if purchased, and the aggregate amount of . available PIP benefits. See Kohane Exhibit G. Circular Letter #11 provides a sample of acceptable declarations page language.
D. Plaintiffs' Opposition to the Motion.
Plaintiffs assert that they have been denied APIP protection based on State Farm's interpretation of the policies, or have been left in the precarious and insecure position of not knowing whether they have additional personal injury protection under their policies. Plaintiffs argue that State Farm's construction of the APIP policy provisions treats the first $50,000 of mandatory PIP benefits as an offset. Plaintiffs argue that the State Farm declarations page fails to set forth the aggregate amount of coverage as required by the regulation and circular letter, thereby intentionally misleading its insureds as to the true amount of APIP coverage purchased and the aggregate coverage available.
The Plaintiffs also attack the State Farm declarations page for failing to indicate the dollar coverage under the Q 1 coverage designation. They argue that the insured must refer to the coverage designation on the declarations page to understand the amount available under a Q 1 policy. Plaintiffs assert that State Farm ignores the decision in Canastraro, by failing to show on the declarations page the amount of APIP coverage set forth in the schedule.
On this motion pursuant to CPLR 3211(7), the Court must accept the allegations in the complaint as true and give the Plaintiffs the benefit of every favorable inference. Rovello v. Orofino Realty Co., 40 NY2d 633, 634 (1976). Thus, the Court must consider whether there is a reasonable chance Plaintiffs will prevail on the merits. .
We agree with State Farm that the Mack and Kotalik claims are not ripe for the Court's consideration as there is no actual controversy between State Farm and these two Plaintiffs for the Court's consideration. N.Y._Pub. Interest COW.. Inc. v. Carey, 42 NY2d 527 (1977). It does not appear from the pleadings that Mack has made a claim for APIP benefits, thus as to his claim, Plaintiffs essentially seek an advisory opinion. Similarly, inasmuch as it is not alleged that Kotalik has a claim in excess of the mandatory $50,000 in PIP benefits, her claim is not ripe for review. While it may be that if either Mack or Kotalik presented a claim in excess of mandatory PIP, State Farm would construe its policies as it has the Fay and Athoe policies, only then would such claims be ripe for the Court's consideration (with this Court's decision as to Faye and Athoe having substantial precedential effect).
Distilled to its "core, Plaintiffs' claim is that the State Farm APIP endorsement is ambiguous when read in conjunction with the declarations page. A comparison of the Canastraro endorsement and the Athoe and Fay endorsements demonstrates that the endorsement was modified and now uses asterisks to reference the maximum extended economic loss available under QI, Q2 and Q3 policies. In Canastraro, the endorsement set forth dollar amounts for "maximum extended Economic Loss" without explanation. We agree with State Farm, therefore, that the endorsement at issue here is not the same as that at issue in Canastraro.
A review of the declarations pages of the Fay and Athoe policies and Circular Letter 11 demonstrates that those pages comport with the regulations. Those declarations pages set forth the No-Fault coverages purchased: (1) the limit of each such coverage and the itemized premium cost of each; (2) total No-Fault coverage limits showing the aggregate limit of No-Fault benefits available under the policy and (3) indicate (or by reference thereon to a schedule attached thereto) the maximum monthly work loss, other necessary expense per diem benefit and death benefit. We find that the policies at issue set forth the information required on the declarations page, namely the limit of each coverage and the premium as well as the aggregate limit of all of the benefits under a Ql policy, or "total personal injury protection benefits. . . $50,000." Further, a comparison of the Canastraro declarations page with the Fay and Athoe declarations pages demonstrates that the aggregate amount payable was not set forth on the Canastraro declarations page and that the Canastraro declarations page referred to the "policy schedule" or endorsement for the APIP limits. However, the Faye and Athoe declarations pages, set forth the aggregate and do not require reference to the endorsement to determine the amount of APIP coverage. Upon review of the declarations page and the endorsement, we decline to find that there is any ambiguity. Moreover, as noted hereinabove, we note that the policy comports with the language of the applicable statutes and circular letter.
For all of the foregoing reasons, the Defendant's motion pursuant to CPLR 3211, dismissing the complaint, is granted in its entirety without costs to either party.
This is the Decision of this Court. Submit Order on notice.
Hon. Donna M. Siwek
Justice of the Supreme Court
Dated: February 5, 2004.
 Despite State Farm’s consistent arguments to the contrary, we decline its invitation to find that Canastraro was wrongly decided.