12 N.Y.3d 650 (2009)

Consent-to-settle and subrogation-protection provisions in a Supplementary Uninsured/Underinsured Motorists (SUM) endorsement remain in effect even after an insured has exhausted the policy limits of one tortfeasor in a multi-tortfeasor accident; settlements with other tortfeasors are still subject to these provisions.

Summary

Beverly Bemiss was injured in a multi-vehicle accident. She received settlements from two at-fault drivers: $25,000 from Kowalczyk (the first tortfeasor, exhausting the policy limits), and $2,500 from Genski (the second tortfeasor, less than policy limits) without Central Mutual’s (Bemiss’s insurer) consent. Bemiss then sought SUM benefits from Central Mutual. Central Mutual denied coverage, arguing Bemiss violated the policy by settling with Genski without consent and prejudicing their subrogation rights. The New York Court of Appeals held that the consent-to-settle and subrogation-protection provisions of the SUM endorsement remained in force even after Bemiss exhausted Kowalczyk’s policy limits; therefore, Bemiss’s failure to obtain consent before settling with Genski precluded her from receiving SUM benefits.

Facts

Beverly Bemiss was injured in a five-car pileup. Kati Kowalczyk’s vehicle rear-ended Bemiss’s vehicle. John Genski’s vehicle then rear-ended Kowalczyk’s vehicle, pushing Kowalczyk’s car into Bemiss’s car again. Kowalczyk had a $25,000 policy limit with GEICO, and Genski had a $25,000 policy limit with Progressive. Bemiss had a $100,000 SUM policy with Central Mutual. Bemiss settled with Kowalczyk/GEICO for $25,000 (the policy limit) after notifying Central Mutual. Bemiss then settled with Genski/Progressive for $2,500 (less than the policy limit) without notifying or obtaining consent from Central Mutual. The release executed by Bemiss did not preserve Central Mutual’s subrogation rights.

Procedural History

Bemiss requested arbitration for SUM benefits from Central Mutual. Central Mutual obtained a temporary stay of arbitration and then sought a permanent stay, arguing Bemiss violated policy conditions. Supreme Court granted Central Mutual’s application and permanently stayed arbitration. The Appellate Division affirmed. The Court of Appeals granted Bemiss’s motion for leave to appeal.

Issue(s)

Whether consent-to-settle and subrogation-protection provisions in a SUM endorsement are extinguished once an insured exhausts the policy limits of one tortfeasor in a multi-tortfeasor accident, allowing the insured to settle with other tortfeasors without the insurer’s consent or protecting its subrogation rights.

Holding

No, because the consent-to-settle and subrogation-protection provisions in the SUM endorsement remain in force and govern settlements that the insured may subsequently make with other tortfeasors. Bemiss violated the policy condition requiring consent when she settled with Genski for less than the policy limit without Central Mutual’s consent, thereby impairing their subrogation rights.

Court’s Reasoning

The court analyzed the interplay of the consent-to-settle (Condition 10), exhaustion (Condition 9), and subrogation-protection (Condition 13) provisions in the standard SUM endorsement prescribed by Regulation 35-D. The court emphasized that Insurance Law § 3420 (f) (2) (A) requires exhaustion of all applicable bodily injury liability policies before SUM coverage is triggered. Citing S’Dao v. National Grange Mut. Ins. Co., the court reiterated that the exhaustion requirement applies to each individual tortfeasor. Condition 10 of the SUM endorsement states that an insured shall not settle with any negligent party without the insurer’s written consent if it impairs the insurer’s rights. The court interpreted “otherwise” in Condition 10 to refer to settlements outside the scope of the 30-day notice provision for settlements at policy limits. The court rejected Bemiss’s argument that “any negligent party” only refers to the first tortfeasor whose policy is exhausted. The court emphasized that Condition 13 explicitly requires the insured to protect the insurer’s subrogation rights. By settling with Genski without consent, Bemiss violated Condition 10 and prejudiced Central Mutual’s subrogation rights. The court stated, “Condition 10 delineates the sole situation in which an insured may settle with any tortfeasor in exchange for a general release, thus prejudicing the insurer’s subrogation rights, without the carrier’s written consent.” The court concluded that allowing Bemiss to settle freely with subsequent tortfeasors would compromise the insurer’s subrogation rights, a key component of the SUM endorsement, noting, “But once having chosen to resolve her claim against Genski, she was not free under the SUM endorsement to compromise Central’s subrogation rights unilaterally.”