Editor's Choice:
NEW YORK CASE-LAW DEVELOPMENTS: SUPPLEMENTARY UNINSURED AND
UNDERINSURED MOTORIST COVERAGE
Following the pattern begun during the past few years,
New York State Courts have continued to refine significant coverage
issues in the areas of supplementary uninsured and underinsured
motorist (SUM/UIM) claims during recent terms. Buoyed in part by
the increases in mandatory minimum liability limits signed into
effect by Gov. Pataki for 1996 (from $10,000 per person / $25,000
per accident / $5,000 for property, to 25/50/10), there has been
extensive litigation of late concerning automobile coverage. With
several new bills pending before the New York State Legislature,
each seeking to enhance the limits of available SUM/UIM coverage,
this trend is expected to intensify.
As of the date of this printing, this writer is aware of
no less than three such present bills; Bill A07728, for example,
has already passed the Assembly as of 5/14/97, and has been
delivered to the Senate and the Rules Committee for consideration.
If confirmed into law, this bill will increase the present SUM/UIM
limits from the current $100,000/$300,000 per-person and per-accident
mandatory maximums (set by Chapter 892 of the Laws of 1977), allowing
insureds to purchase up to $500,000/$1,000,000 of supplementary
coverage. Should this amendment to Insurance Law §3420(f)(2) take
effect, there will likely be an influx of new issues to litigate
along with the heightened stakes. This edition of the Update will
summarize some of the more significant and recent developments which
have occurred under existing forms of the law.
Per-Person Limitation Vigilance
With the subsequent issuance of “emergency regulation” 35-D
amendments by the Insurance Department, in response to the Court of
Appeals ruling in Mostow v. State Farm Insurance Co., 88 N.Y.2d 321
(1996), the importance of this oft reported case bears repeating.
The emergency regulations provide corrective interpretation of SUM
endorsement language, thereby directly addressing the Court’s ruling
in Mostow. As a matter of first impression in New York, the Court
had explored the particularity with which policy provisions must be
crafted in order to prevent multiple claimants from recovering
individual amounts in excess of a per-person limitation. The policy
provided for a $300,000 per-accident limit, but did not detail with
sufficient particularity that the per-accident limit was also subject
to $100,000 per-person recoveries; the two claimants were permitted
to individually recover amounts in excess of the latter limitation.
The emergency regulations essentially overrule Mostow, and more
clearly delineate the application of the per-person limitation to
any individual recoveries as may aggregate beneath the per-accident
limits.
In a recent case, Gross v. Aetna Casualty & Surety Co.,
NYLJ, June 13, 1997, at 35, the identical result as in Mostow was
upheld by the Appellate Division, Second Department, though for
different reasoning. In rendering its decision months after the
February 26, 1997 legislative enactment of the 35-D emergency
regulations, the court in Gross would have presumably been confined
to arriving at an opposite result as that obtained in Mostow; the
defendant insurer in Gross was a prime candidate to escape payment
of the same type of excessive award suffered by the insurer in the
earlier decision. However, the issue concerning application of the
$100,000 per-person limitation as a defense against an individual
award of $180,000, was not raised until the time of appeal, and was
not properly preserved for appellate attention. Thus an aggregate
award of $280,000 (across two plaintiffs) was upheld, despite the
$100,000 per-person limitation and the strictures of Regulation 35-D.
The Exhaustion of Policy Limits
In the landmark decision of S’Dao v. National Grange Mut.
Ins. Co., 87 N.Y.2d 853 (1995), the Court of Appeals answered
conclusively a question which had split the Departments. Reversing
the Fourth Department decision in S’Dao, the Court adopted the
reasoning used by the Second Department in deciding similar matters
and held that, in cases where there are multiple tortfeasors, the
plaintiff need not exhaust all underlying coverage before making an
underinsured claim, but must only demonstrate that one of the
tortfeasors was underinsured to trigger UIM coverage. More recently,
the Second Department reiterated this rule in General Accident Ins.
Co. v. Gobetz, 651 N.Y.S.2d 623 (1996), holding that the exhaustion
of coverage of only one vehicle is required in order to proceed with
an underinsured motorist claim.
It should be noted that the Regulation 35-D provisions also
address a so-called “catch-22” situation which had previously arisen
with respect to the policy exhaustion requirements. In deference to
the underinsured carrier’s subrogation rights, a claimant must obtain
the consent of the insurer to any settlement with a tortfeasor. In
this way, a plaintiff was often caught between attempting to exhaust
a tortfeasor’s policy and an insurer who would not consent to the
settlement (thereby delaying the UIM claim). Since the enactment of
Regulation 35-D, an insurer (from whom consent is requested in
writing) has three options in response: 1) to consent to settlement,
thereby waiving subrogation rights; 2) to accept an assignment of
the claim, pay the tortfeasor’s policy limits to the claimant and
gain the right to control the action against the tortfeasor; and 3)
do nothing -- after 30 days, consent is implied and subrogation
rights extinguished.
Issues of Notice: Claims and Denials
Policy endorsements often explicitly prescribe a time period
within which an intention to pursue an underinsured / uninsured claim
shall be communicated to the insurer. Alternately, the more general
guideline of "as soon as reasonably practicable" may also be relied
upon. With reference to this less specific period of notice, the
courts have been asked to further define the sufficiency of an
insured's notice of claim. The reasonableness of a delay in notice
is handled largely on a case-by-case basis; under circumstances where
a plaintiff has diligently investigated a claim, but has not been
informed of a disclaimer to coverage for a tortfeasor, delays in
notice greater than 90 days have been upheld. See, Interboro Mutual
Ins. Co. v. Uvari, 632 N.Y.S.2d 24 (2d Dept. 1995). In Matter of
Colonial Penn Insur. Co. v. Moreira, NYLJ, April 8, 1997, at 33
(claimant was victim of hit-and-run), the Second Department held a
delay of over three days acceptable under circumstances of injury
requiring medical attention, despite policy provisions for notice of
an uninsured claim “within 24 hours or as soon as reasonably
possible.”
A corresponding duty of an insurer is timely notification
of an exclusion or denial of coverage. Again, a fact intensive
determination is required for adjudication of this issue. An
unexplained delay of two months in disclaiming coverage was held
unreasonable as a matter of law in the 1979 Court of Appeals decision
in Hartford Ins. Co. v. Nassau County, 46 N.Y.2d 1028. Where a
disclaimer of coverage is based on an exclusion to coverage, rather
than the non-existence of coverage in general, courts are fairly
rigorous in enforcing timely denials of coverage. In Matter of
Aetna Life & Casualty v. Boucher, NYLJ, April 17, 1997, at 31, the
Second Department ruled that an insurer was estopped from applying
an exclusion to coverage arising through the use of a motorcycle
(an excluded vehicle not insured under the policy), and must
therefore pay underinsured benefits as a result of an approximate
one-year delay in denying coverage.
“Accident” Requirements
In Michaels v. City of Buffalo 85 N.Y.2d 754 (1995), the
Court of Appeals established that the term “accident,” as applied
in describing a covered event in motor vehicle insurance policies,
indicates an instance of trauma, violence and the application of an
external force causing injury. This definition has been extended to
exclude coverage for causes of injury that are not “accidental”
within the common usage of the term. In Yodice v. Aetna Casualty &
Surety Co., NYLJ, March 31, 1997, at 34, a disclaimer in coverage
was upheld for an injury caused by an intentional assault (by
purposely hitting claimant with a truck).
Offsets and Reductions in Awards
Under the new Regulation 35-D SUM endorsement, the offset
provision or reduction-in-coverage clause remains valid and
enforceable; however, its existence must be explicitly detailed
on the declaration sheet to avoid ambiguity. In United Community
Ins. Co. v. Mucatel, 69 N.Y.2d 777 (1987), the Court of Appeals
affirmed the validity of such a reduction-in-coverage provision
(pre-Regulation 35-D), where the offset was clearly indicated on
the declaration sheet. The Second Department has additionally
held that, where multiple uninsured/underinsured recoveries are
possible, benefits paid on one policy endorsement must be reduced
by any recoveries had under the remaining endorsements. In Matter
of GEICO v. Abbensett, NYLJ, June 20, 1997, at 32, the Court held
that, since each of two UIM policies available to claimant had
limits of $10,000 in coverage, the recovery of $10,000 under one,
entirely offset any recovery on the second.
Cancellation of Policies
Courts have consistently required of insurers an extremely
rigorous execution of procedure with respect to cancellation of
policies and coverage. The Second Department has held that, when
canceling a policy issued under the Assigned Risk Plan (due to
non-payment of premiums), the insurer’s cancellation was ineffective
because the company had failed to bill the insured at least 15 days
in advance of the premium’s due date. GEICO v. Nolan, 622 N.Y.S.2d
115 (2d Dept. 1995). Similarly, the Court found a cancellation of
a policy was ineffective where the insurer did not strictly comply
with the rules under the New York Automobile Insurance
Plan §14(E)(b)(2). The insurer failed to indicate on its billing
invoice that the insured retained the option of remitting premium
payments to “either [the broker] or directly to the company.” The
mere absence of this disclosure justified forcing the insurer to
defend and indemnify. Matter of Home Indemnity Co. v. de Martinez,
NYLJ, June 20, 1997, at 34.
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Worker’s Compensation 1996 Reform:
With the full ramifications of the Omnibus Workers’
Compensation Reform Act of 1996 just beginning to become apparent,
the New York Courts (not to mention the legal journals and newspapers)
seem to have been continuously occupied with the ongoing debate over
retroactivity versus prospective application of this Act’s tenets.
Perhaps the most publicized aspect of the September 10, 1996 Act
concerns its modification and partial repeal of the 1972 Court of
Appeals decision in Dole v. Dow Chemical Co., 30 N.Y.2d 143. The
earlier Dole case had established that an employer was subject to
impleader (for indemnity and contribution) by a third party being
sued for injuries suffered by a worker of the employer. The injured
employee was/is not able to sue the employer directly because worker’s
compensation benefits are to be an employee’s exclusive remedy, as
against an employer with proper coverage. Under the rubric of Dole,
an employer may still be exposed to additional tort liability as a
third-party defendant, despite obtaining worker’s compensation
insurance.
The Reform Act’s amendment of Worker’s Compensation Law § 11,
was intended to directly address the effects of the Dole decision,
eliminating the possibility of such impleader in many cases and
restoring a degree of the employers’ traditional immunity from tort
liability (as afforded by the original intent behind the worker’s
compensation laws). The new § 11 provides that, “an employer shall
not be liable for contribution or indemnity to any third person based
upon liability for injuries sustained by an employee acting within
the scope of his or her employment for such employer, unless such
third person proves through competent medical evidence that such
employee has sustained a ‘grave injury’ [emphasis added]....” Exactly
what constitutes a “grave injury” is a definition attempted within
the amendment (including: death; permanent paraplegia /quadriplegia;
loss of an arm, leg, hand, foot, multiple fingers or toes; total
blindness or deafness; certain permanent and severe facial
disfigurements or disabling brain injuries) but will likely be a
subject more fully explored through years of litigation, much as
has occurred with reference to the “serious injury” standard imparted
under New York’s no-fault laws (see Insurance Law § 5102(d)). Thus,
in cases where it is held that an employee has not suffered an injury
of the indicated severity, an employer will not be subject to
impleader.
One context in which this issue of employers’ liability
typically arises is in cases of construction-site injury. Under
N.Y. Labor Law § 240(1) -- the so-called “scaffold law,” site owners
(and/or general contractors) are frequently exposed to absolute
liability for certain elevation-related injuries occurring to an
employee of a subcontractor. See Rocovich v. Consolidated Edison
Co., 78 N.Y.2d 509, 514. Whereas, as noted above, an injured employee
is unable to bring an action directly against the employer/
subcontractor, the Labor Law explicitly provides a vehicle for a
cause of action against the site owner and general contractor. It
has been the common practice for such a site owner or general
contractor, who is often completely without fault for the injuries,
to thereafter seek contribution and indemnification from the employer.
With the recent amendment to § 11 in force, such third party
actions are only permissible in cases where the employee has sustained
a “grave injury.” In this way, there may be many instances in the
future where a site owner or general contractor has been held solely
responsible for a worker’s injuries, despite the fact that fault may
have been more properly apportioned to the employer. However, it
should be noted that the Reform Act does not necessarily eliminate
actions for contribution and indemnification as may be provided for
via contractual clauses or “hold harmless” agreements. Under the
terms of many construction contracts, an employer will expressly agree
to insulate an owner or general contractor against tort liability for
injuries to the subcontractor’s employees; third party actions may
still be brought under the terms of such a contract.
Given the legislative intent to eliminate a significant
number of the described third party actions (estimates range as
high as 90%), the question remains whether the new law should impact
such actions as were already pending at the time the amendments were
adopted. Left largely unanswered in either the language of the Act
or the legislative history thereof, it remains for the courts to
decide whether to apply the grave injury standard to preexisting
actions. Several notable legal commentators (e.g., Siegel’s Practice
Review, No. 55, March 1997) have entered the fray with respect to
keeping tally of the various trial level decisions on each side of
the issue; some courts have dismissed actions against employers for
absence of a grave injury (9 decisions), other courts have elected
not to apply the law retroactively (12 decisions). With its April
21, 1997 decision not to apply the law retroactively, the Appellate
Division, Second Department became the first appellate level court
to decide this issue. Morales v. Gross, NYLJ, Apr. 24, 1997, at 25.
After an exhaustive analysis of the legislative intent behind the Act,
the general principles of statutory construction and considerations
of fairness and equity, the Court held that dismissal of pending
actions would be an unintended and drastic result, unwarranted by
the Act and, accordingly, tipped the scales even more strongly in
favor of prospective-only application.
Thus, at the present moment, the debate appears to have
subsided to some degree. Lower courts in other Departments have
since adopted the Second Department’s reasoning in absence of
controlling authority from their respective appellate courts.
However, even if the remaining Appellate Divisions eventually
come to agree with the Second Department, the issue may ultimately
call for final decree from the Court of Appeals; with millions of
dollars in liability at the center of this controversy, it is likely
that review will be sought at the highest level by defendants and
their insurers.
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