77 N.Y.2d 894 (1991)

Parties can contractually agree to offset supplemental uninsured motorist coverage by the amount of workers’ compensation benefits received, even if this results in the insurer avoiding payment for non-economic losses not covered by workers’ compensation.

Summary

Louis Valente sought recovery for pain and suffering under a supplemental uninsured motorist endorsement. The insurance contract contained a clause offsetting this recovery by the amount received from workers’ compensation. The New York Court of Appeals addressed whether this offset was enforceable, even though it prevented Valente from receiving any supplemental benefits for his non-economic loss (pain and suffering) because the workers’ compensation award equaled or exceeded the amount sought for pain and suffering. The Court held that the contractual offset was enforceable because the supplemental coverage was optional and the contract term had been approved by the Commissioner of Insurance, even if it produced an anomalous result.

Facts

Louis Valente was injured in an accident with an uninsured motorist. He received workers’ compensation benefits as a result of the injury. Valente also sought recovery for pain and suffering under the supplemental uninsured motorist endorsement of his insurance policy with Prudential. The policy contained a clause that expressly provided for an offset, reducing recovery under the supplemental coverage by the amount of workers’ compensation benefits received. Because the workers’ compensation benefits equaled or exceeded the amount sought for pain and suffering, the offset effectively eliminated any supplemental recovery.

Procedural History

The lower courts held that Valente’s recovery for pain and suffering under the supplemental uninsured motorist endorsement should be reduced by the amount of the workers’ compensation award. Valente appealed to the Court of Appeals of the State of New York.

Issue(s)

Whether a contractual offset in a supplemental uninsured motorist insurance policy, which reduces recovery by the amount of workers’ compensation benefits received, is enforceable even if it results in the insurer avoiding all payment for non-economic losses not covered by the workers’ compensation award.

Holding

Yes, because the supplemental coverage is optional, the contract term has been approved by the Commissioner of Insurance, and there is no statutory prohibition against such offsets.

Court’s Reasoning

The Court reasoned that unlike the minimum uninsured motorist coverage mandated by Insurance Law § 3420(f)(1), supplemental coverage is optional under Insurance Law § 3420(f)(2). The statute does not prohibit parties from agreeing to reduce supplemental recovery by amounts received pursuant to workers’ compensation laws. The Court distinguished this case from situations involving mandatory minimum coverage, where such offsets might be against public policy. The Court acknowledged the seemingly unfair result, stating, “Under these circumstances there is no basis for holding the contractual offset unenforceable with respect to the supplemental coverage although, as petitioner notes, it produces the anomalous result of permitting the insurer to avoid all payment of supplemental benefits for petitioner’s noneconomic loss, which was not covered by the workers’ compensation award, simply because the amount of that award equals or exceeds the amount sought here for pain and suffering.” The Court emphasized that any changes to this contractual freedom must come from the legislature: “Petitioner’s argument, that such offsets should only be permitted when the insured would otherwise obtain a duplicate award, must be addressed to the Legislature, which alone has the power to proscribe contractual terms in that manner. In the absence of such a statutory restriction, the court is bound to enforce the contract as written.”