| Matter of Central Mut. Ins. Co. (Bemiss) |
| 2008 NY Slip Op 06618 [54 AD3d 499] |
| August 14, 2008 |
| Appellate Division, Third Department |
| In the Matter of the Arbitration between Central Mutual InsuranceCompany, Respondent, and Beverly Bemiss, Appellant. |
—[*1] Goldberg Segalla, L.L.P., Albany (Jonathan M. Bernstein of counsel), forrespondent.
Rose, J. Appeal from an order of the Supreme Court (Hummel, J.), entered May 16, 2007 inRensselaer County, which granted petitioner's application pursuant to CPLR 7503 to permanentlystay arbitration between the parties.
After respondent was injured in a multicar accident, she negotiated a settlement with one ofthe tortfeasors for the full amount of that tortfeasor's liability insurance policy. She then gavewritten notice of her intent to enter into this settlement to petitioner, which had issued her aninsurance policy with supplementary uninsured/underinsured motorist (hereinafter SUM)coverage, but petitioner did not respond. Later, she agreed to settle with a second tortfeasor forless than that tortfeasor's policy limits without first giving any notice to, or obtaining writtenconsent from, petitioner. Respondent ultimately signed releases for both tortfeasors that made noprovision for preserving petitioner's subrogation rights. When she then made a claim for SUMbenefits, petitioner disclaimed coverage based upon her failure to either obtain its consent to thesettlements or take steps to preserve its subrogation rights. Respondent then demandedarbitration of her SUM claim, and petitioner commenced this CPLR article 75 proceeding topermanently stay arbitration. Supreme Court granted petitioner's application. Respondent nowappeals.[*2]
Initially, we agree with respondent that the terms of thepolicy permitted her to settle with the first tortfeasor without preserving petitioner's subrogationrights.[FN1]Paragraph 10 of the policy describes when an insured may settle with a tortfeasor withoutjeopardizing SUM coverage and paragraph 13 indicates that the insured may not prejudicepetitioner's subrogation rights except as permitted in paragraph 10.[FN2]The first sentence of paragraph 10 permits settlement and execution of a release with a tortfeasorfor such party's available policy limits after 30 days actual written notice to petitioner, unlesspetitioner agrees to advance the settlement amount within that time. Here, this provisionpermitted settlement with the first tortfeasor because respondent gave timely written notice andpetitioner did not agree to advance the settlement amount. Neither paragraph 10 nor paragraph 13mandated preservation of petitioner's subrogation rights in those circumstances, and respondent'sexecution of the release with the first tortfeasor did not violate the conditions of petitioner'spolicy (see e.g. Matter of Atlantic Mut. Ins. Co. v Cooper, 247 AD2d 209, 209 [1998];cf. Matter of Transportation Ins. Co. [Pecoraro], 270 AD2d 851, 852 [2000]).
We reach a different conclusion as to respondent's argument that her settlement with the firsttortfeasor for that party's policy limits relieved her of the obligation to either obtain petitioner'swritten consent to her settlement with the second tortfeasor or preserve petitioner's subrogationrights in the release given to that tortfeasor. While paragraph 9 of the policy makes clear thatrespondent was obligated to fully exhaust the policy of only one of the tortfeasors involved in heraccident (see S'Dao v National Grange Mut. Ins. Co., 87 NY2d 853, 854-855 [1995]),that same provision does not excuse a failure to comply with paragraph 10 upon settling withanother tortfeasor. Unlike the settlement with the first tortfeasor, paragraph 10's first sentence isnot applicable to respondent's settlement with the second tortfeasor because the latter was not forthe full policy amount. As a result, only the last sentence of paragraph 10 applies here. Thatsentence provides: "An insured shall not otherwise settle with any negligent party, without ourwritten consent, such that our [subrogation] rights would be impaired." We do not view thissentence to be limited to where a party seeks in the first instance to settle for the full availablepolicy limits of one tortfeasor. Rather, its function is to make clear that the method described inthe first sentence of paragraph 10 is the one and only way to enter a settlement with "anynegligent party" which impairs petitioner's rights without its consent. There is no dispute thatrespondent failed to obtain petitioner's consent or reserve petitioner's subrogation rights againstthe second tortfeasor here.
Our reading of paragraph 10 will not have the effect of discouraging settlements by, asrespondent contends, holding her hostage to petitioner's subrogation rights and forcing her tofully litigate any claims that she might have against any and all tortfeasors. That effect would[*3]occur only if the insured were required to exhaust the policiesof all tortfeasors either before or after receiving SUM benefits. However, since the amendment ofthe applicable regulation (see 11 NYCRR 60-2.3 [f]) in 1993 and the Court of Appealsholding in S'Dao v National Grange Mut. Ins. Co. (supra) in 1995, it has becomeclear that insureds need only exhaust the policy or policies of a single tortfeasor(see Dachs and Dachs, Insurance Law, UM/SUM Coverage: Proposed Statutory,Regulatory Amendments, NYLJ, Sept. 13, 2005, at 3, col 1). Thus, there is no longer anyrequirement in the regulations or the policy language that the insured pursue litigation or settlethe claims that it might have against additional tortfeasors in order to qualify for or retain SUMbenefits. While it is true that our reading of paragraph 10 precludes the insured from entering asecond settlement that impairs subrogation rights without the insurer's consent, it nonethelessencourages an initial settlement with one tortfeasor and expedites the receipt of SUM benefitswhile protecting the insurer's subrogation rights to recoup the benefits paid from othertortfeasors. There can be little doubt that such was the intent of the applicable regulations (seeid.).
Inasmuch as respondent did not comply with the terms of her policy, she lost her claim toSUM benefits and we find no basis to disturb Supreme Court's determination to permanently stayarbitration (see Matter of PrudentialProp. & Cas. Ins. Co. v Ambeau, 19 AD3d 999, 1000 [2005]; Matter of State Farm Mut. Auto. Ins. Co. vLucano, 11 AD3d 548, 548 [2004], lv denied 5 NY3d 717 [2005]; New YorkCent. Mut. Fire Ins. Co. v Danaher, 290 AD2d 783, 784-785 [2002]).
Mercure, J.P., Spain and Stein, JJ., concur.
Kavanagh, J. (dissenting). I do not agree with the majority's position that, prior to gainingaccess to supplementary uninsured/underinsured motorist (hereinafter SUM) coverage, aninsured must fully exhaust the applicable policy limits of every tortfeasor's insurancepolicy who was involved in the accident or, in the alternative, once it has fully exhausted theapplicable policy limits of one tortfeasor, it must obtain written permission from the SUM carrierto enter into any settlement with any other tortfeasor that is less than the policy limits. For thisreason, I respectfully dissent.
When respondent stopped her vehicle as a result of a car accident that occurred in front ofher, she was struck in the rear by the first tortfeasor's vehicle. The second tortfeasor's vehicle thenstruck the first tortfeasor's vehicle in the rear, causing it to strike respondent's vehicle a secondtime. As a result, respondent commenced an action against both tortfeasors for injuries shesustained as a result of the accident. In the discussions that ensued, the settlement offer receivedfrom the second tortfeasor was drastically lower than that of the first tortfeasor, reflecting therelative level of culpability of each party.
Paragraph 9 of respondent's SUM policy—entitled "ExhaustionRequired"—provides that "[e]xcept as provided in [paragraph] 10, we will pay under thisSUM coverage only after the limits of liability have been used up under all motor vehicle bodilyinjury liability insurance policies or bonds applicable at the time of the accident in regard toany one person who may be legally liable for the bodily injury sustained by [respondent]"(emphasis added). It is conceded that when respondent settled with the first tortfeasor, sheexhausted all bodily injury insurance policies with respect to that tortfeasor and, per the literalreading of this provision of her policy, she was not required to exhaust the second tortfeasor'sbodily injury policies in order to make a [*4]SUM claim underher policy.
Paragraph 10 provides the manner in which respondent was able to settle with the firsttortfeasor—it allowed respondent to sign a release with a tortfeasor if she providedpetitioner with written notice of her intent to settle for the full available limit of the firsttortfeasor's policy and if, after 30 days, petitioner choose not to advance the settlement amount torespondent and proceed against the first tortfeasor. Respondent provided such notice to petitionerand petitioner did not respond. Once this notice was provided and the requisite time periodexpired, respondent was within her rights under her policy with petitioner to settle for the fullamount of that tortfeasor's insurance policy and provide a release to that tortfeasor for any furtherliability. Moreover, to gain access to the SUM policy, she was not then required, once this hadoccurred, to provide the SUM carrier with written notice of her intent to settle with the secondtortfeasor even if for less than the policy limits.
The majority's reference to the last sentence of paragraph 10 is, in my view, misplaced.While it states that "[a]n insured shall not otherwise settle with any negligent party, without ourwritten consent, such that our rights would be impaired," this does not apply to the secondtortfeasor herein. This sentence—found in the "Release or Advance"paragraph—applies to a party seeking in the first instance to settle for the full limits of aliability policy and requires that the settlement must be done in accordance with theaforementioned provisions of paragraph 10. However, once those conditions have been met, anda settlement has been reached with respect to the full limits of one tortfeasor's policy, paragraph10, and all of its terms, no longer applies to restrict a party's ability to settle with a secondtortfeasor. Here, the exhaustion of the first tortfeasor's policy triggered respondent's SUMcoverage and the settlement reached with the second tortfeasor did not render the SUM coverageunavailable (see S'Dao v National Grange Mut. Ins. Co., 87 NY2d 853, 854-855 [1995];Matter of Liberty Mut. Ins. Co. vDoherty, 13 AD3d 629, 630 [2004]; see also Matter of Hertz Claim Mgt. Corp. v Kulakowich, 53 AD3d578, 579 [2008]).
To require otherwise would result in a circumstance where an insured who has sued multipletortfeasors would only be allowed to pursue SUM benefits after he or she had fully exhaustedeach tortfeasor's insurance policy—or, after fully exhausting one of the tortfeasor'spolicies, had obtained written permission from the SUM carrier to settle for less than the policylimits as to all of the remaining tortfeasors. Where there are multiple tortfeasors and the level oflegal responsibility among the various tortfeasors is so dramatically different, it would bevirtually impossible to obtain settlements that completely exhaust each applicable policy. In sucha circumstance, the SUM carrier would have little or no incentive to give its consent to such asettlement. By the majority's view, the insured would be forced to fully litigate any claims itmight have against less culpable tortfeasors in order to preserve its rights to SUM benefits. Sucha finding is clearly at odds with that rendered in S'Dao v National Grange Mut. Ins. Co.(87 NY2d at 854-855). There, the plaintiff was injured in a two-car accident and reachedsettlements with two carriers and did not exhaust the coverage of one of the vehicles involved.The SUM coverage was found to be available even though the limits of the policies held by all ofthe tortfeasors had not been exhausted.[FN*][*5]
The majority holds that, once a plaintiff has exhausted thepersonal injury policy limits as to any one tortfeasor, he or she may access his or her SUM policyas long as the plaintiff has not settled or in any way compromised the SUM carrier's claimagainst any other tortfeasor. Per such a holding, a plaintiff would have no incentive toever settle for less than the policy limit with any secondary tortfeasor absent the expressconsent of the SUM carrier. What is left unanswered by the majority's position is the question ofwhat happens after the SUM claim has been resolved—whether a plaintiff must maintainhis or her position of no compromise against any and all tortfeasors regardless of their culpabilityin order to ensure that he or she has not in any way compromised the award that it has alreadyreceived from the SUM carrier. This position, in my view, is dramatically at odds with thelongstanding goal of creating an environment that is designed to result in responsible settlementsof this type of litigation.
The effect that this has is to discourage settlements in this type of litigation and toinvite—indeed command—a plaintiff's counsel to fully litigate any and all personalinjury claims that it might have against any and all tortfeasors. Clearly, this is not the result thatwas intended by the Legislature when it enacted these provisions and, in my view, it constitutes awaste of precious judicial resources.
Moreover, such a result is clearly at odds with the overriding purpose of SUM coverage,which, as stated in the instant SUM policy, is to provide compensatory damages that an insuredis legally entitled to recover from the owner or operator of an underinsured motor vehicle that, asa result of his or her negligence, has caused the insured bodily injury. Here, the party primarilyresponsible for respondent's injuries was underinsured. SUM coverage is specifically designed toaddress such a circumstance and to provide an injured party with access to coverage that willinsure that he or she is properly compensated for the injuries that he or she sustained as a resultof such other party's negligence. The purpose of such coverage would clearly be frustrated when,as a practical matter, access to a SUM policy could only be obtained when the policy limits ofeach and every tortfeasor involved in the accident has been fully exhausted. In addition, such aresult is inherently inconsistent with the purpose of the settlement mechanism erected within therelease and advance provisions of the SUM policy.
Moreover, the majority's position is, in my view, contrary to the stated purpose of Regulation35-D (see 11 NYCRR 60-2.0 et seq.). Regulation 35-D was promulgated inresponse to preregulation SUM endorsements that provided for "different methods of claimsettlement and arbitration" that would "create confusion in the process and, as a result,diminish the utility of SUM coverage" (11 NYCRR 60-2.0 [b] [emphasis added]). Theregulation was enacted to establish "a standard form for SUM coverage, in order to eliminateambiguity, minimize confusion and maximize its utility" (11 NYCRR 60-2.0 [c][emphasis added]). If the majority's view accurately states the law of this state, it is difficult toimagine how, in situations involving multiple tortfeasors, SUM benefits could ever be effectivelyobtained and, as a result, such a view fails to comport with the regulation's stated purpose.
Finally, respondent should not, in my view, be penalized because she had the misfortune tobe involved in an accident that involved more than one wrongdoer. Had she only brought suitagainst the primary tortfeasor and settled against him under precisely the same circumstanceswhile forgoing her right to sue others that were involved in this accident, respondent wouldclearly have been entitled to make this claim under her SUM policy. As a result, I would reverseand deny petitioner's application to stay arbitration.
Ordered that the order is affirmed, without costs.
Footnote 1: Contrary to petitioner'scontention, we consider respondent's arguments to be preserved for our review as they wereraised before Supreme Court by petitioner's own arguments as well as respondent's memorandumof law in opposition to petitioner's motion (see e.g. Matter of Mount Sinai Med. Ctr. vEmpire Blue Cross & Blue Shield, 282 AD2d 965, 966 [2001], lv denied 96 NY2d719 [2001]).
Footnote 2: The paragraphs of petitioner'spolicy mirror the terms of the SUM endorsement prescribed by 11 NYCRR 60-2.3 (f).
Footnote *: While this matter was litigatedprior to the promulgation of Regulation 35-D (see 11 NYCRR 60-2.0 et seq.), the Courtof Appeals, by footnote, took "note that [R]egulation 60-2.3 (e) (prescribed SupplementaryUninsured Motorists Endorsement, Conditions para [9]) provides that the condition precedent topayment is satisfied when the limits of liability 'in regard to any one person who may be legallyliable for the bodily injury sustained by the insured' . . . are exhausted" (S'Dao vNational Grange Mut. Ins. Co., 87 NY2d at 854 n).