82 N.Y.2d 57 (1993)
A “livery exclusion” in the uninsured motorists coverage endorsement of a personal automobile liability policy is unenforceable because it is not based on statute or regulation and is inconsistent with the purpose of mandatory uninsured motor vehicle statutes and public policy.
Summary
This case addresses the validity of a “livery exclusion” in an uninsured motorist policy. Passengers in a car operating as a livery were injured in an accident. The car’s insurance policy, issued by Liberty Mutual, contained a “livery exclusion,” denying coverage when the vehicle is used to carry persons for a fee. Liberty Mutual sought to stay arbitration of the passengers’ uninsured motorist claim, arguing the exclusion was valid. The New York Court of Appeals held the livery exclusion in the uninsured motorist endorsement was unenforceable, as it contradicted the purpose of mandatory uninsured motorist coverage and lacked statutory or regulatory basis. This decision ensures innocent accident victims can seek compensation.
Facts
Milicent Hogan and others were passengers in a vehicle owned and operated by John Karim. Karim’s vehicle was operating as a livery when it collided with another car after running a stop sign. Liberty Mutual insured Karim’s vehicle under a policy that contained a “livery exclusion” in both the liability coverage and the uninsured motorists coverage endorsement. The policy excluded coverage for vehicles used to carry persons for a fee. Liberty Mutual disclaimed coverage, citing the livery exclusion.
Procedural History
The respondents demanded arbitration from Liberty Mutual under the uninsured motorists coverage. Liberty Mutual then commenced a proceeding to stay arbitration. The Supreme Court denied Liberty Mutual’s application to stay arbitration and dismissed the petition. The Appellate Division affirmed the Supreme Court’s decision. Liberty Mutual appealed to the New York Court of Appeals.
Issue(s)
Whether a “livery exclusion” contained in the uninsured motorists coverage endorsement of a personal automobile liability policy is invalid, requiring arbitration of an uninsured motorist claim.
Holding
Yes, because the exclusion is not based on statute or regulation and is inconsistent with the purpose of the mandatory uninsured motor vehicle statutes and the public policy of New York State.
Court’s Reasoning
The court reasoned that Insurance Law § 3420 mandates uninsured motorist coverage in every auto insurance policy. Unlike regulations for liability, no-fault, and supplemental uninsured/underinsured coverage, there are no regulations that specify permissible exclusions for uninsured motorist coverage. The Court drew the conclusion that the absence of express authorization suggests the exclusion is not permissible.
The court applied the rule established in Rosado v Eveready Ins. Co., stating that an insurer’s obligation is as broad as the applicable statutes, except for permitted exclusions. If an exclusion is not permitted by law, the insurer’s liability cannot be limited. The court emphasized the public policy of ensuring innocent victims of motor vehicle accidents are compensated, citing Matter of Allstate Ins. Co. v Shaw. Enforcing a livery exclusion would reduce the scope of coverage required by statute.
Liberty Mutual argued that the Superintendent of Insurance’s inaction implied approval of the livery exclusion because Insurance Law § 3110 allows the Superintendent to withdraw approval if the policy contravenes public policy. The court rejected this, stating that the courts retain the duty to interpret statutes reasonably, regardless of the Superintendent’s inaction. The court questioned whether a claim to the Motor Vehicle Accident Indemnification Corporation (MVAIC) would be an adequate remedy.
Chief Judge Kaye concurred, suggesting the livery exclusion authorized by 11 NYCRR 60-1.2(a) could apply to uninsured motorists coverage. However, because Liberty Mutual did not contest the Supreme Court’s holding that the exclusion was limited to liability coverage, she concurred in the result. The concurrence emphasized that the MVAIC was created to fill gaps in insurance coverage and that the passengers should have sought a remedy there. However, the majority found that even with the existence of the MVAIC, allowing the insurer to escape liability would unjustly enrich them.
The court stated: “[O]nce an insurance company issues a liability policy to an insured, ‘its obligation, with the exception of permitted exclusions, [arises] by operation of law and [is] as broad as the requirements of the applicable statutes.’ If an attempted exclusion is not permitted by law, the insurer’s liability under the policy cannot be limited.”