New York Law Review

Tag: insurance policy interpretation

  • Mostow v. State Farm Ins. Co., 88 N.Y.2d 321 (1996): Interpreting Ambiguous Insurance Policy Limits

    Mostow v. State Farm Ins. Co. 88 N.Y.2d 321 (1996)

    When an insurance policy provision is susceptible to multiple reasonable interpretations, it is ambiguous and must be construed in favor of the insured.

    Summary

    Sandell and Alan Mostow were injured in an auto accident. Their underinsured motorist policy with State Farm had limits of $100,000 per person and $300,000 per accident. After receiving $10,000 from the other driver, they sought arbitration under their policy. The arbitrators awarded Sandell $190,000 and Alan $100,000, finding the $100,000 per person limit inapplicable where multiple people were injured. State Farm sought to modify the award, arguing Sandell’s recovery should be capped at $100,000. The New York Court of Appeals held that the policy language was ambiguous because it could be interpreted as either limiting recovery to $100,000 per person or allowing the full $300,000 to be apportioned among multiple injured persons. The court construed the ambiguity against the insurer, affirming the arbitrator’s award.

    Facts

    Sandell and Alan Mostow were involved in an automobile accident in January 1992.

    The Mostows’ insurance policy with State Farm provided underinsured motorist coverage with limits of $100,000 per person and $300,000 per accident.

    The policy stated that ” ‘[u]nder ‘Each Person’ is the amount of coverage for all damages due to bodily injury to one person. Under ‘Each Accident’ is the total amount of coverage for all damages due to bodily injury to two or more persons in the same accident”.

    After receiving the other driver’s policy limit of $10,000, the Mostows demanded arbitration from State Farm under their underinsured motorist coverage.

    Procedural History

    Arbitrators awarded Sandell Mostow $190,000 and Alan Mostow $100,000, determining the policy provided $300,000 coverage when two or more people were injured.

    The Mostows sought to confirm the arbitration award; State Farm cross-petitioned to vacate or modify it, arguing Sandell’s award exceeded the policy limit.

    The Supreme Court granted State Farm’s cross-petition, reducing Sandell’s award to $100,000, finding the arbitrators exceeded their authority and that the policy limited recovery to $100,000 per person.

    The Appellate Division reversed, reinstating the original arbitration award, holding the policy provisions were ambiguous and should be construed in favor of the insured.

    The New York Court of Appeals granted State Farm leave to appeal.

    Issue(s)

    Whether the terms of an insurance policy providing a per-person limit and a per-accident limit, without explicitly stating the per-accident limit is subject to the per-person limit, are ambiguous, allowing for a construction favoring the insured.

    Holding

    Yes, because the policy language is susceptible to multiple reasonable interpretations, it is ambiguous and must be construed in favor of the insured, allowing for a per-person recovery exceeding the stated per-person limit when multiple people are injured in a single accident.

    Court’s Reasoning

    The court found the policy language ambiguous because it could be reasonably interpreted in two ways: (1) limiting any injured person’s recovery to $100,000, or (2) providing $100,000 only when one person is injured, but allowing the full $300,000 when two or more are injured. The court noted the absence of language stating the per-accident limit was “subject to” the per-person limit, unlike the statutory language in Insurance Law § 3420 (f) (2) (A).

    Because Insurance Law allows for coverage more favorable to the insured, the court reasoned that the interpretation allowing a higher recovery for Sandell Mostow was permissible. Citing precedent, the court emphasized that ambiguities in insurance policies are construed against the insurer, as the drafter of the policy language.

    The court stated, “Although the common understanding of the insurance industry and the legal profession may well be that the total per accident coverage is subject to the per-person limits — i.e.— classic ‘split limit’ coverage — the test to determine whether an insurance contract is ambiguous focuses on the reasonable expectations of the average insured upon reading the policy… and employing common speech”.

    The court also addressed a regulation promulgated by the Superintendent of Insurance mandating similar policy language, noting that the regulation did not clarify the ambiguity of the policy at issue. The court suggested the insurer could have avoided the ambiguity by including the “subject to” language from the Insurance Law.

  • 1303 Webster Avenue Realty Corp. v. Great American Surplus Lines Insurance Co., 63 N.Y.2d 227 (1984): Enforceability of Limitations Periods in Fire Insurance Policies

    63 N.Y.2d 227 (1984)

    When a fire insurance policy contains a limitations period shorter than the statutory standard, the policy is enforceable as if it conformed to the statutory standard; however, if the policy contains no limitations period, the general contract statute of limitations applies.

    Summary

    1303 Webster Avenue Realty Corp. sued Great American Surplus Lines Insurance Company and Illinois Employers’ Insurance Company to recover under two fire insurance policies. The insurers moved to dismiss, arguing the suit was filed after the limitations period. The lower court denied the motion, but the Appellate Division reversed. The Court of Appeals considered whether the contractual limitations period in each policy barred the suit. It held that if a policy contains a limitations period (even an incorrect one), the statutory period is read into the contract. However, if a policy contains no limitations period, the general six-year contract statute of limitations applies because the insured lacks notice of a shortened period.

    Facts

    1303 Webster Avenue Realty Corp. (plaintiff) held two fire insurance policies, one from Great American Surplus Lines Insurance Company and another from Illinois Employers’ Insurance Company. After suffering a loss, the plaintiff filed suit to recover under both policies. The insurers moved to dismiss, contending that the lawsuit was filed after the contractual limitations period for bringing such claims. The policy issued by Illinois Employers’ Insurance Company of Wausau contained a one-year limitations period.

    Procedural History

    The Supreme Court, Special Term, denied the insurers’ motion to dismiss, reasoning that the policies contained a one-year limitations period, which was non-compliant with the statutory two-year requirement, thus waiving the benefit of the shorter limitations period. The Appellate Division reversed, dismissing the complaint, holding that the policies were enforceable as if they contained the two-year limitations period. The plaintiff appealed to the Court of Appeals.

    Issue(s)

    1. Whether a fire insurance policy containing a limitations period shorter than the two-year period prescribed by statute is enforceable as if it conformed to the statutory standard.

    2. Whether the general six-year statute of limitations for contract actions applies if the insurance policy lacks any reference to a limitations period.

    Holding

    1. Yes, because where a policy of fire insurance provides for a shorter period of limitations than permitted by statute, the policy is enforceable as if it conformed with the statutory standard.

    2. Yes, because in the absence of any provision in the policy as to the limitations period for commencing suit, the insured has no notice that there is a shortened statute of limitations and is thus entitled to rely on the general six-year provision for contract actions.

    Court’s Reasoning

    The Court of Appeals reasoned that when a policy contains a limitations period, even if it’s shorter than the statutory period, the policy is still enforceable, but the statutory period is read into the contract. The inclusion of any express limitations period precludes a determination that the insurer intended to waive the statutory limitations period. The court cited Insurance Law § 143(1) and Bersani v General Acc. Fire & Life Assur. Corp., 36 N.Y.2d 457 (1975). However, if the policy contains no limitations period whatsoever, the insured has no notice of a shortened period and can rely on the general six-year statute of limitations for contracts. The court relied on Medical Facilities v Pryke, 62 N.Y.2d 716 (1984), noting that “in the absence of any provision in the policy as to the limitations period for commencing suit, the insured has no notice that there is a shortened Statute of Limitations and is thus entitled to rely on the general six-year provision for contract actions.” Therefore, the Court held that the action against Illinois Employers’ Insurance Company was time-barred because the policy contained a one-year limitations period. As to Great American, because the plaintiff raised a factual question as to whether that policy contained any limitations period, the motion to dismiss was denied.