22 N.Y.2d 554 (1968)

An insurer’s disclaimer of liability under the main policy does not retroactively change the status of passengers in the insured vehicle from “insured persons” to “qualified persons” under the New York Automobile Accident Indemnification Endorsement.

Summary

Patricia Faison and others were injured while passengers in a vehicle insured by Knickerbocker Insurance Company. Knickerbocker disclaimed liability due to the insured’s failure to cooperate. Faison then sought arbitration under the “New York Automobile Accident Indemnification Endorsement.” Knickerbocker argued that its disclaimer converted Faison from an “insured person” to a “qualified person,” thus relieving it of responsibility. The court held that a disclaimer under the main policy does not change an “insured person” to a “qualified person” and that the endorsement remained viable despite the disclaimer. This decision ensures that individuals initially covered as insureds retain their protection, even if the primary policy coverage is later disclaimed, furthering the statute’s purpose of compensating victims of uninsured motorists.

Facts

• On March 5, 1966, Patricia Faison and other respondents were injured while passengers in a car owned and operated by Knickerbocker’s insured.
• In December 1966, Knickerbocker disclaimed liability due to the insured’s failure to provide notice of the accident and cooperate with the investigation.
• Respondents served a notice of claim and demand for arbitration on Knickerbocker and the Motor Vehicle Accident Indemnification Corporation (MVAIC) under the “New York Automobile Accident Indemnification Endorsement”.
• MVAIC opposed the claim and obtained a stay of arbitration in a separate proceeding.

Procedural History

• Special Term denied Knickerbocker’s application for a stay of arbitration, holding that the disclaimer did not change the respondents’ status from insured to qualified persons.
• The lower court reasoned that because the policy’s effective date was after June 30, 1965, Knickerbocker was obligated to assume responsibilities formerly held by MVAIC, as required by section 605 of the Insurance Law.
• Knickerbocker appealed this decision to the Court of Appeals of New York.

Issue(s)

1. Whether an insurer’s disclaimer of liability under the main insurance policy retroactively alters the status of individuals who were initially “insured persons” under the policy to “qualified persons” under the New York Automobile Accident Indemnification Endorsement.
2. Whether the exclusionary language in the endorsement, which excludes vehicles owned by the named insured from the category of uninsured automobiles, applies when the insurer has disclaimed liability for a particular accident.

Holding

1. No, because the endorsement required by section 167 (subd. 2-a) of the Insurance Law exists independently from the standard policy and remains viable even after a disclaimer under the main policy. A disclaimer cannot retroactively change an “insured person” to a “qualified person.”
2. No, because the exclusionary language should be construed in favor of coverage, particularly when a disclaimer of liability has been issued. The exclusion does not apply when the insurer disclaims liability for the accident.

Court’s Reasoning

The court reasoned that the purpose of the statute requiring the endorsement is to ensure compensation for victims as if the at-fault driver were insured. Depriving an insured person of coverage due to a future act by the named insured or insurer is inconsistent with this purpose.

The court stated, “Thus, the endorsement required by section 167 (subd. 2-a) of the Insurance Law should be considered to exist independently from the standard policy to which it is annexed and should remain viable even though liability under the main policy has been disclaimed by the insurer.”

The court emphasized that the Insurance Law establishes mutually exclusive categories of “insured” and “qualified” persons. A disclaimer cannot retroactively reclassify someone from one category to the other.

Regarding the exclusionary language, the court held that it should be construed in favor of the insured to provide coverage, rather than deny it. The court stated that “the negatively stated exclusionary language should not be held to encompass an automobile owned by the named insured where a disclaimer or liability for a particular accident has been interposed.” This ensures that the endorsement provides the intended protection even when the main policy is disclaimed.