Rekemeyer v. State Farm Mut. Auto. Ins. Co. , 4 N.Y.3d 468 (2005)
When an insured provides timely notice of an accident, an insurer must demonstrate prejudice resulting from a late notice of a supplementary uninsured/underinsured motorist (SUM) claim before it can disclaim coverage.
Summary
Rekemeyer was injured in a car accident and promptly notified State Farm, her insurer, and filed for no-fault benefits. She later sued the other driver, Bouyea, and notified State Farm of the lawsuit. After learning Bouyea’s policy limits were insufficient to cover her alleged damages, Rekemeyer sought SUM coverage from State Farm, who disclaimed due to untimely notice. Rekemeyer then filed a declaratory judgment action. The Court of Appeals held that State Farm must demonstrate prejudice from the late SUM notice, given the initial timely notice of the accident. This decision modifies the traditional “no-prejudice” rule in New York insurance law within the specific context of SUM claims when the insurer had timely notice of the underlying accident.
Facts
Cynthia Rekemeyer was rear-ended on May 8, 1998, and immediately notified State Farm, filing a no-fault claim. She had pre-existing back issues. State Farm requested medical evaluations in December 1998 and February 2000. Rekemeyer sued Bouyea, the other driver, on April 27, 1999, informing State Farm of the lawsuit in July 1999. In July 1999, she alleged severe and permanent injuries in a bill of particulars. She learned in September 1999 that Bouyea’s coverage was $50,000, while her demand was $1 million. She had back surgery in October 1999. Bouyea offered a settlement of $45,000 in March 2000, later increasing it to $50,000. Rekemeyer notified State Farm of her intent to pursue SUM coverage on March 31, 2000. State Farm disclaimed coverage on April 25, 2000, citing late notice of the SUM claim and the lawsuit.
Procedural History
Rekemeyer filed a declaratory judgment action in October 2000. Supreme Court denied State Farm’s motion for summary judgment and granted Rekemeyer’s motion, declaring SUM coverage. The Appellate Division reversed, finding the notice untimely. The Court of Appeals granted leave to appeal.
Issue(s)
1. Whether Rekemeyer provided notice of her SUM claim to State Farm as soon as practicable, thus complying with the insurance contract.
2. Whether State Farm must demonstrate prejudice resulting from Rekemeyer’s allegedly late notice of her SUM claim before disclaiming coverage, given that State Farm had timely notice of the accident.
Holding
1. No, because Rekemeyer was aware of the seriousness of her injuries and the inadequacy of Bouyea’s insurance coverage approximately six months before notifying State Farm of her SUM claim.
2. Yes, because Rekemeyer gave timely notice of the accident, allowing State Farm the opportunity to investigate, thereby satisfying the policy objective of preventing fraud and collusion.
Court’s Reasoning
The Court acknowledged the “as soon as practicable” requirement for SUM claims, which mandates 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 [1999]). The Court agreed with the Appellate Division that Rekemeyer’s notice was untimely, given her knowledge of serious injuries and Bouyea’s limited coverage months before she notified State Farm.
The Court then addressed the no-prejudice rule, where an insurer can disclaim coverage for late notice regardless of whether they suffered prejudice. However, the Court carved out an exception for SUM claims where the insurer received timely notice of the accident. Given the initial notice, the insurer had the opportunity to investigate the accident, satisfying the primary purpose of the notice requirement. The court reasoned that “absent a showing of prejudice, State Farm should not be entitled to a windfall.” The burden of proving prejudice rests on the insurer because