New York Law Review

Tag: Underinsured Motorist Coverage

  • 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.

  • Szeli v. Prudential Property and Casualty Ins. Co., 81 N.Y.2d 492 (1993): Determining Underinsured Status with Single Limit Policies

    Szeli v. Prudential Property and Casualty Ins. Co., 81 N.Y.2d 492 (1993)

    When comparing insurance policies to determine underinsured status under New York Insurance Law § 3420(f)(2) in a multiple-victim accident, the insured’s ‘per accident’ bodily injury limit should be compared to the tortfeasor’s policy limit, considering any required allocation for property damage within the tortfeasor’s ‘single limit’ policy.

    Summary

    In a case involving multiple injuries from a single accident, the New York Court of Appeals addressed how to determine if a tortfeasor is underinsured when their insurance policy has a ‘single limit’ covering both bodily injury and property damage. Brian Szeli was injured in an accident caused by a tortfeasor with a $300,000 single-limit policy. Szeli sought underinsured motorist (SUM) coverage under his father’s Prudential policy, which had a $100,000 per person/$300,000 per accident split limit for bodily injury. The Court held that when comparing the policies, the insured’s per-accident limit should be considered, and the tortfeasor’s single limit must be construed to include the minimum required property damage coverage, thus potentially reducing the amount available for bodily injury. This makes the tortfeasor underinsured, entitling Szeli to arbitration.

    Facts

    Brian Szeli and two other teenagers were hit by a car, causing serious injuries. The tortfeasor’s insurance policy had a single limit of $300,000 per accident for both bodily injury and property damage. The tortfeasor’s insurer paid the full $300,000 policy limit, allocating $95,000 to Szeli and $205,000 to the other two injured individuals. Szeli sought supplementary underinsured motorist (SUM) coverage under his father’s insurance policy with Prudential, arguing his damages exceeded the settlement amount.

    Procedural History

    Prudential denied Szeli’s claim for SUM coverage, leading Szeli to seek arbitration. Prudential then filed a petition in Supreme Court to stay the arbitration. The Supreme Court denied Prudential’s petition and ordered arbitration. The Appellate Division reversed, finding that the tortfeasor’s policy was equal to or greater than Szeli’s policy. The New York Court of Appeals granted leave to appeal.

    Issue(s)

    1. Whether, in a multiple-victim accident with a single SUM claimant, the insured’s bodily injury limit for comparison purposes should be the per person or per accident amount.

    2. Whether, for comparison purposes, the tortfeasor’s entire single limit should be considered their bodily injury limit, even when it also covers property damage.

    Holding

    1. No, because in a multiple-victim accident, the ‘per accident’ limit of the insured’s policy should be used for comparison.

    2. No, because the tortfeasor’s single limit must be construed to include the minimum legally required amount of property damage coverage, effectively reducing the amount available for bodily injury claims.

    Court’s Reasoning

    The Court reasoned that Insurance Law § 3420(f)(2) aims to provide insureds with the same level of protection they would provide others if they were the tortfeasor. The Court framed the inquiry as whether the insured (Szeli’s father) would have greater bodily injury coverage than the tortfeasor, considering the circumstances of a multiple-victim accident. The Court emphasized a “facial comparison of the policy limits without reduction from the judgment of other claims arising from the accident.”

    The Court rejected Prudential’s argument that the $100,000 per person limit should be used because only one person was claiming under the Prudential policy. The court stated that the determination of whether SUM coverage is available requires a comparison of each policy’s bodily injury liability coverage as it operates under the policy terms. This determination is made “without reference to the terms of the SUM endorsement.”

    The court noted that Vehicle and Traffic Law § 311 requires New York motorists to have at least $5,000 in property damage liability coverage. Therefore, the tortfeasor’s $300,000 single limit policy necessarily includes this minimum property damage coverage, meaning less than $300,000 is actually available for bodily injury. The court reasoned that “a policy facially offering $300,000 exclusively for bodily injury liability insurance provides greater bodily injury coverage than one facially offering $300,000 divided between bodily injury and property damage.”

    Referencing other jurisdictions, the court cited Heirs of Leetz v Arnica Mut. Ins. Co., 839 P2d 511, 513 (Colo App) and Staub v Hanover Ins. Co., 251 NJ Super 66, 68, 596 A2d 1096, 1097, and concluded that the “per accident limit ($300,000) should be employed in the underinsurance comparison when there is a multiple-victim accident but only one underinsurance claimant.”

  • Federal Insurance Co. v. Watnick, 80 N.Y.2d 539 (1992): Exhaustion of All Available Policies Before Underinsured Claim

    Federal Insurance Co. v. Watnick, 80 N.Y.2d 539 (1992)

    An insured party must exhaust all available bodily injury liability insurance policies by payment of judgments or settlements before seeking underinsured motorist coverage from their own insurer.

    Summary

    The Watnicks, New York residents, were injured in Quebec by Anderson, a Quebec resident. They sought underinsured motorist benefits from their insurer, Federal, after receiving a small settlement from Quebec’s automobile insurance plan (QAIA). The New York Court of Appeals held that the Watnicks were not entitled to underinsured motorist benefits because they had not fully exhausted all available insurance coverage by payment, as required by both their policy and New York Insurance Law § 3420(f)(2). The court emphasized that exhaustion by payment is a condition precedent to seeking underinsured coverage.

    Facts

    Jay and Marianna Watnick, New York residents, were injured in a car accident in Quebec caused by Jay Anderson, a Quebec resident. Anderson was insured under Quebec’s mandatory automobile insurance system (QAIA) and by Commerce Insurance Company. The Watnicks had a motor vehicle liability policy with Federal Insurance Company, which included underinsured motorist coverage. The QAIA awarded Jay Watnick $82.12, and denied Marianna Watnick’s claim. The Watnicks did not appeal these determinations.

    Procedural History

    The Watnicks filed claims with Federal under their uninsured and underinsured motorist endorsements. Federal denied coverage and sought a stay of arbitration. The Supreme Court granted Federal’s application. The Appellate Division affirmed the stay of arbitration for the uninsured claim but reversed for the underinsured claim, directing arbitration. The Court of Appeals granted Federal leave to appeal.

    Issue(s)

    Whether the Watnicks are entitled to recover damages under the underinsured motorist endorsement of their vehicle liability insurance policy with Federal, given that they have not exhausted the limits of all applicable bodily injury liability policies by payment.

    Holding

    No, because the Watnicks have not exhausted, by payment, the limits of all applicable bodily injury insurance policies as required by New York Insurance Law § 3420(f)(2) and the terms of their insurance policy with Federal.

    Court’s Reasoning

    The Court of Appeals emphasized the clear language of both the insurance policy and Insurance Law § 3420(f)(2), which requires exhaustion by payment as a condition precedent to underinsured motorist coverage. The court stated: “As a condition precedent to the obligation of the insurer to pay under the supplementary uninsured motorists insurance coverage, the limits of liability of all bodily injury liability bonds or insurance policies applicable at the time of the accident shall be exhausted by payment of judgments or settlements.” The court distinguished Matter of Valente v. Prudential Prop. & Cas. Ins. Co., where a contractual offset for workers’ compensation was enforced because it was explicitly included in the policy. Here, the policy allowed Federal to reduce coverage only by sums paid by legally responsible parties, not by the amount payable under other insurance policies. Since the Watnicks received only a minimal payment from the QAIA and did not pursue the full extent of available coverage, they failed to meet the exhaustion requirement. Allowing arbitration would rewrite the insurance endorsement. The court concluded that “the statutory scheme requires primary insurers to pay every last dollar, and requires plaintiffs to accept no less, prior to the initiation of an underinsurance claim.”