Title: In the Matter of Clarendon National Insurance Company v. Francisco Nunez, Sr. In the Matter of Allstate Insurance Company v. Nydia Rivera

State: new-york

Issuer: New York Appellate Court

Document:

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This opinion is uncorrected and subject to revision before
publication in the New York Reports.
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No. 89  
In the Matter of Allstate 
Insurance Company, 
            Respondent, 
        v. 
Nydia Rivera, et al., 
            Appellants.
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No. 90  
In the Matter of Clarendon 
National Insurance Company,
            Respondent, 
        v. 
Francisco Nunez, Sr., et al.,
            Appellants.
Case No. 89:
Jonathan A. Dachs, for appellants.
Marshall D. Sweetbaum, for respondent.
New York State Trial Lawyers' Association and New York
Insurance Association; amici curiae.
Case No. 90:
Jonathan A. Dachs, for appellants.
John R. Casey, for respondent.
New York State Trial Lawyers' Association, amicus
curiae.
JONES, J.:
At issue in both of these appeals is whether
supplementary uninsured/underinsured motorists (SUM) coverage was
triggered.  In both appeals, we conclude that it was not.
In the first appeal, Allstate Insurance Company issued
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an automobile insurance policy to Petra Mercado that provided
bodily injury liability and SUM coverage of $25,000 per
person/$50,000 per accident.  In July 2005, while the policy was
in effect, Mercado and five passengers in her car were injured
when they were struck by a vehicle driven by Nilza Rodriguez and
insured by GMAC Insurance Company, which provided the same bodily
injury liability coverage as the Allstate policy.  GMAC tendered
its coverage limit of $50,000, paying $25,000 to Mercado and
$5,000 to each of her five passengers.  Subsequently, the five
passengers sought SUM benefits under the Allstate policy.  By
letter dated February 20, 2007, Allstate denied SUM coverage,
stating that “[s]ince the $50,000 liability policy of Nilza
Rodriguez is an offset to our Uninsured Motorist coverage, we
will not be able to honor any claims for Uninsured Motorist
coverage under [the Allstate] policy.”    
In the second appeal, Clarendon National Insurance
Company issued an automobile policy to Francisco Nunez with
bodily injury liability and SUM coverage of $25,000 per
person/$50,000 per accident.  In June 2001, while the policy was
in effect, Nunez, his wife, and their two children were injured
when they were struck by a vehicle insured by Progressive
Northwestern Insurance Company, which provided the same liability
coverage as the Clarendon policy.  Progressive tendered its
policy limit of $50,000, paying $15,000 each to three of the
family members and $5,000 to the fourth family member.  The Nunez
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family then sought SUM benefits under the Clarendon policy.  By
letter dated October 7, 2005, Clarendon denied SUM coverage,
stating that “[s]ince the amount the four claimants will receive
from Progressive ($50,000) is equal to the SUM limits of the
Clarendon policy ($50,000)[,] the four claimants are not entitled
to receive any SUM benefits.”
The SUM claimants under the Allstate and Clarendon
policies demanded arbitration.  Allstate and Clarendon
(petitioner insurers) each commenced a CPLR article 75 proceeding
for a permanent stay of arbitration.  In both cases, the SUM
claimants (respondents) argued that SUM coverage was triggered
under Insurance Department regulation 11 NYCRR § 60-2.3 (f).
The Appellate Division ruled for petitioner insurers
and permanently stayed arbitration in both cases.  We granted the
SUM claimants in Matter of Allstate and Matter of Clarendon leave
to appeal, and now affirm in both cases.
Insurance Law § 3420 provides, in pertinent part:
“Any [automobile insurance] policy shall, at
the option of the insured, also provide
supplementary uninsured/underinsured
motorists [SUM] insurance for bodily injury,
in an amount up to the bodily injury
liability insurance limits of coverage
provided under such policy . . . [SUM]
insurance shall provide coverage . . . if the
limits of liability under all . . . insurance
policies of another motor vehicle liable for
damages are in a lesser amount than the
bodily injury liability insurance limits of
coverage provided by such policy. . . .  As a
condition precedent to the obligation of the
insurer to pay under the [SUM] insurance
coverage, the limits of liability of all
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bodily injury liability bonds or insurance
policies applicable at the time of the
accident shall be exhausted by payment of
judgments or settlements”
(Insurance Law § 3420 [f] [2] [A] [emphasis added]).  The plain
language of Insurance Law § 3420, therefore, provides that SUM
coverage is only triggered where the bodily injury liability
insurance limits of the policy covering the tortfeasor’s vehicle
are less than the third-party liability limits of the policy
under which a party is seeking SUM benefits. 
This statute “calls for a facial comparison of the
policy limits without reduction from the judgment of other claims
arising from the accident” (Matter of Prudential Prop. & Cas. Co.
v Szeli, 83 NY2d 681, 686 [1994] [held that “underinsured
motorist coverage is triggered when the limit of the insured's
bodily injury liability coverage is greater than the same
coverage in the tortfeasor's policy”]).  Further, section 3420
(f) (2) “was enacted to allow policyholders to acquire the same
level of protection for themselves and their passengers as they
purchased to protect themselves against liability to others”
(Matter of Metropolitan Prop. & Cas. Ins. Co. v Mancuso (93 NY2d
487 [1999], citing Mem of State Executive Dept, 1977 McKinney's
Session Laws of NY, at 2445, 2446; see also Raffellini v State
Farm Mutual Automobile Ins. Co., 9 NY3d 196, 203-204 [2007];
Szeli, 83 NY2d at 685-686).
The Legislature may authorize an administrative agency
“to fill in the interstices in the legislative product by
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* As Insurance Law § 3420 (f) (2) and Regulation 35-D are in
derogation of the common law, they must be narrowly construed.
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prescribing rules and regulations consistent with the enabling
legislation” (Matter of Medical Socy. of State of NY v Serio, 100
NY2d 854, 865 [2003], quoting Matter of Nicholas v Kahn, 47 NY2d
24, 31 [1979]).  “In so doing, an agency can adopt regulations
that go beyond the text of that legislation, provided they are
not inconsistent with the statutory language or its underlying
purposes” (Matter of General Elec. Capital Corp. v New York State
Div. of Tax Appeals, Tax Appeals Trib., 2 NY3d 249, 254 [2004]). 
“A duly promulgated regulation that meets these criteria has the
force of law” (Raffellini, 9 NY3d at 201).  However, “if [a]
regulation runs counter to the clear wording of a statutory
provision, it should not be accorded any weight” (Kurcsics v
Merchants Mut. Ins. Co., 49 NY2d 451, 459 [1980] [citation
omitted]).  As relevant here, the Legislature has vested the
Superintendent of Insurance with “broad power to interpret,
clarify, and implement the legislative policy” by promulgating
regulations (Medical Socy., 100 NY2d at 863-864, quoting Ostrer v
Schenck, 41 NY2d 782, 785 [1977]).
In 1992, the Superintendent of Insurance promulgated
Insurance Department Regulation 35-D, codified at 11 NYCRR § 60-
2, which requires that “[e]very SUM endorsement issued shall be
the [SUM] Endorsement prescribed by subdivision (f) of this
section” (11 NYCRR 60-2.3 [c]).*  Under Regulation 35-D, the term
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“insured” means:
(1) you, as the named insured and, while
residents of the same household, your spouse
and the relatives of either you or your
spouse;
(2) any other person while occupying:
(i) a motor vehicle insured for SUM
under this policy; or
(ii) any other motor vehicle while
being operated by you or your
spouse; and
(3) any person, with respect to damages such
person is entitled to recover, because of
bodily injury to which this coverage applies
sustained by an insured under paragraph (1)
or (2) above”
(11 NYCRR § 60-2.3 [f] [I] [a]).  Further, Regulation 35-D
defines an “uninsured motor vehicle” as
“a motor vehicle that, through its ownership,
maintenance or use, results in bodily injury
to an insured, and for which . . . (3) there
is a bodily injury liability insurance
coverage or bond applicable to such motor
vehicle at the time of the accident, but; . .
. (ii) the amount of such insurance coverage
or bond has been reduced, by payments to
other persons injured in the accident, to an
amount less than the third-party bodily
injury liability limit of this policy”
(11 NYCRR § 60-2.3 [f] [I] [c] [3] [ii]).
Each co-occupant in the covered vehicles contends that
he or she should be allowed to deduct the payments made to other
co-occupants, thereby reducing the tortfeasor's bodily injury
liability coverage to an amount less than the coverage limits on
their vehicle, triggering SUM coverage.  The SUM claimants
therefore argue that co-occupants constitute “other persons”
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under the endorsement, even though co-occupants are insureds
under the policy.  We are unpersuaded.
  The “payments to other persons” that may be deducted
from the tortfeasor's coverage limits for purposes of rendering
the tortfeasor “uninsured” under a SUM endorsement do not
encompass payments made to anyone who is an insured under the
endorsement.  It is important to note that the phrase “other
persons” is used elsewhere in the endorsement to denote persons
other than those insured under the policy.  The Notice and Proof
of Claim condition directs that “the insured or other person
making claim” shall give written notice of claim “under this SUM
coverage” (11 NYCRR § 60-2.3 [f] [III] [Condition 2]).  It is
evident that, in the phrase “the insured or other person,” the
reference to “other person” means someone who is not “the
insured.”  As each claimant here falls within the endorsement's
definition of an “insured,” which encompasses all passengers in
the covered vehicle, claimants are not “other person[s].” 
Insureds are therefore able to reduce the coverage limits of the
tortfeasor's policy only when payments made under the
tortfeasor's policy are to individuals -- such as occupants of
the tortfeasor's vehicle, injured pedestrians or those operating
a third vehicle -- not covered under the SUM endorsement.  This
guarantees that those who have purchased SUM coverage will
receive the same recovery they have made available to third
parties they injure -- but no more.
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The position of the SUM claimants and the dissent
notwithstanding, this is the only construction that is consistent
with the plain language of Insurance Law § 3420, the enabling
legislation that Regulation 35-D must conform to, and the core
principle underlying SUM coverage -- that insureds can never use
a SUM endorsement to obtain a greater recovery for themselves
than is provided under the policy to third parties injured by the
insureds (see Raffellini, 9 NY3d at 203-204; Mancuso, 93 NY2d at
492; Szeli, 83 NY2d at 687).  To demonstrate this principle, we
need only look at what would occur in Matter of Clarendon were we
to adopt the claimants' position.  The four members of the Nunez
family received $50,000 under the tortfeasor's policy and, by
each claimant characterizing the other three family members as
“other person[s],” the family now seeks to obtain an additional
$50,000 under the SUM coverage provided in their own policy, for
a total recovery of $100,000.  Yet, if the Nunez vehicle was
operated negligently, causing an accident that injured four
pedestrians, the total recovery those injured parties could
obtain under the Clarendon policy would be $50,000, the per
accident limit.
Therefore, reading Insurance Law § 3420 (f) (2), our
well-settled interpretation of this statute and Regulation 35-D
together, we hold that SUM coverage is not available (that is,
SUM coverage cannot be triggered) because (1) the bodily injury
liability insurance coverage limits provided under the respective
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tortfeasors’ policies were equal to the third-party bodily injury
liability limits of the Allstate and Clarendon policies, (2) the
payments made to the SUM claimants did not reduce the amount of
the bodily injury insurance coverage provided under the
tortfeasors’ policies to “an amount less than the third-party
bodily injury liability limit of [the Allstate and Clarendon
policies]” (11 NYCRR § 60-2.3 [f] [I] [c] [3] [ii]) and (3)
allowing such additional coverage would provide an
insured/policyholder with more coverage than that provided to an
injured third party under his or her policy.   
Accordingly, the orders of the Appellate Division
should be affirmed, with costs.
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Matter of Allstate Insurance Company v Rivera, No. 89
Matter of Clarendon National Insurance Company v Nunez, No. 90
CIPARICK, J. (dissenting):
Because the majority improperly forecloses the
availability of Supplementary Uninsured Motorists (SUM) benefits
to claimants, passengers injured in a car accident, by defining
them as outside the purview of Insurance Regulation 35-D (see 11
NYCRR § 60-2.3 [f] [I] [c]) and labeling them as something other
than “other persons injured in the accident,” I respectfully
dissent and would hold that Regulation 35-D’s plain language,
history and the basic purpose of the SUM coverage provision
triggers benefits for claimants. 
In Matter of Allstate, six claimants were occupants of
a vehicle injured in a car accident.  The driver of the non-
offending vehicle had an insurance policy issued by Allstate. 
The offending vehicle was insured by non-party GMAC Insurance. 
The GMAC policy provided a coverage amount of $ 50,000 per
accident and $ 25,000 per person.  GMAC paid $ 25,000 to the
driver of the struck vehicle and $ 5,000 to each of the five
other claimants, thereby totaling the $ 50,000 maximum coverage
amount per accident.  
Similarly, in Matter of Clarendon, four claimants were
riding in a vehicle struck by an offending vehicle insured by
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non-party Progressive Northwestern Insurance Company.  After
accepting liability for the accident, Progressive paid out of its
$ 50,000 per accident coverage $ 15,000 each to three of the
claimants and $ 5,000 to the fourth claimant, thereby totaling
its $ 50,000 cap per accident.  In both cases, the owners of the
non-offending vehicles in which claimants rode had contracted and
paid for an insurance plan providing for SUM coverage. 
Claimants, in both cases, sought SUM coverage for the
inadequately recompensed injured persons, but Allstate and
Clarendon, respectively, denied their claims. 
Today, in denying claimants SUM benefits, the majority
reads Regulation 35-D as not having contemplated SUM benefits for
claimants, even though they were “other persons injured in the
accident.”  In interpreting the meaning of a regulation, courts
must defer to the Superintendent of Insurance’s interpretation of
his statutorily-vested authority and to his special expertise,
unless such interpretation of the statute or regulation is wholly
irrational or contrary to its clear meaning (see Matter of Med.
Malpractice Ins. Assn. v Supt. of Ins. of State of N.Y., 72 NY2d
753, 761-762 [1988]).  Courts must give effect to the plain words
of a regulation and presume that it was crafted carefully to mean
what it states in plain and ordinary language.  
Regulation 35-D states that a vehicle is underinsured
for purposes of triggering SUM coverage where    
“a motor vehicle . . . results in bodily
injury to an insured, and for which . . . 
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there is bodily injury liability insurance
coverage . . . applicable to such motor
vehicle at the time of the accident, but . .
. the amount of such insurance coverage . . .
has been reduced, by payments to other
persons injured in the accident, to an amount
less than the third-party bodily injury
liability of this policy” (see 11 NYCRR § 60-
2.3 [f] [3] [c] [3] [ii]).  
The majority concludes that co-vehicle occupants are
not “other persons injured in the accident” by reading into the
regulation a meaning excluding co-claimants as “other persons”
and classifying them as “insureds.”  Co-claimants, however, meet
all of the criteria required by the plain language of the
regulation to trigger SUM coverage: they are indeed injured
parties in a car accident; the drivers/owners of the vehicles had
bodily injury liability coverage; and claimants’ coverage was
reduced by payments made to co-claimants –- “other persons.”  Put
simply, when a tortfeasor’s coverage is reduced by payments to
others –- either co-claimants or strangers –- less coverage is
available under that policy to compensate them.  Accordingly,
under Regulation 35-D, claimants must be considered “other
persons injured in the accident.”     
Significantly, Regulation 35-D is silent as to any
exception, limitation or other qualification to the phrase “other
persons.”  Nowhere does the regulation exclude as “other persons”
a co-passenger or family relative of an insured.  If the
regulation was meant to exclude a co-passenger, it would have
been a simple matter for the drafters to so state, and the
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regulation’s lack of any such exception is powerful evidence that
no such limiting gloss was meant to be read into it (see
McKinney’s Cons Laws of NY, Book 1, Statutes § 74).  Rather, the
Regulation’s words were intended to mean what they say in
ordinary and everyday terms.  The majority’s rendering of an
artificial and strained distinction between co-vehicle occupants
and strangers to the insured vehicle in the definition of “other
persons injured in the accident” is unwarranted and inconsistent
with the plain language of the regulation as incorporated into
these insurance policies.   
In my view, the language of the SUM provisions is
clearly, straightforwardly and unambiguously in favor of
triggering SUM coverage for claimants, but to the extent that it
can be read as having any ambiguity, the legal consequences of
any such lack of clarity in the substance of these insurance
contracts should not militate against claimants (see e.g. Matter
of Mostow v State Farm Ins. Co., 88 NY2d 321, 325-327 [1996];
Sperling v Great Am. Indem. Co., 7 NY2d 442, 447-449 [1960];
Mutal Life Ins. Co. v Hurni Packing Co., 263 US 167, 176 [1923]). 
In this regard, insurers have not challenged the regulatory
language at issue here at any point as improper, unfair or
unauthorized, even when other portions of Regulation 35-D were
challenged.  
Words of an insurance policy, furthermore, must be
viewed from the position of an average person applying common
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speech (see Buckner v Motor Veh. Acc. Indem. Co., 66 NY2d 211,
213-214 [1985]; Ace Wire & Cable Co. v Atena Cas. & Sur. Co., 60
NY2d 390, 398 [1983]).  “The language employed in a contract of
insurance must be given its ordinary meaning, such as the average
policyholder of ordinary intelligence, as well as the insurer,
would attach to it” (City of Albany v Std. Acc. Ins. Co., 7 NY2d
422, 430 [1960]; see also Album Realty Corp. v Am. Home Assur.
Co., 80 NY2d 1008, 1010 [1992]).  Here, claimants would not have
reasonably expected the language “other persons injured in the
accident” to refer to any persons other than those –- like
themselves –- who were injured in a motor vehicle accident.  Nor
were the owners of the policies in a position to have their form
contracts amended, if they so chose, or to otherwise alter the
text of Regulation 35-D.  
The majority, citing Insurance Law § 3420 (f) (2) (A),
argues that SUM coverage is available only where the policy
limits of a tortfeasor’s vehicle are less than the third-party
limits of the policy providing for SUM benefits (see maj op at
4), but the Superintendent of Insurance has been vested with the
authority to promulgate rules and regulations that may expand
upon such definitions (see Matter of Med. Socy. of State of N.Y.
v Sergio, 100 NY2d 854, 863-864 [2003]; Ostrer v Schenck, 41 NY2d
782, 785 [1977]).  In promulgating Regulation 35-D, which the
majority does not here challenge, the Superintendent was well
within his authority to broaden the definition of an uninsured
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motor vehicle (see e.g. Matter of Am. Mfgs. Ins. Co. v Morgan,
296 AD2d 491 [2d Dept 2002]; Matter of New York Cent. Mut. Fire
Ins. Co. v White, 262 AD2d 415 [2d Dept 1999]), as well as that
of an underinsured motor vehicle (see Matter of Allstate Ins. Co.
v Sung Ju, 56 AD3d 551 [2d Dept 2008]).  
In addition, the majority looks for support in the
Notice and Proof of Claim provision (see 11 NYYCRR § 60-2.3 [f]
[condition] [2]), where there is a distinction between “the
insured or other person making claim,” and injects that
distinction into the plain language of the regulation at issue
(see maj op at 7).  There is no evidence, however, that the
language found in the Notice and Proof of Claim provision can be
interpreted to rule out the possibility that claimants in the SUM
coverage provision, who the majority claims fall within the
endorsement’s definition of an “insured,” cannot be deemed “other
persons.”  On the contrary, the fact that when the drafters
intended to make such a distinction between the insured and other
persons they did so in clear and unambiguous language is telling
that no such distinction here was intended.  
Moreover, providing SUM coverage to claimants is not,
as the majority states, contrary to the purpose and history of
SUM coverage.  New York’s uninsured and underinsured motorist
protection statutes were enacted to protect innocent victims of
motor vehicle accidents caused by motorists who, for whatever
reason, could not be counted on to make their victims whole (see
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Matter of Vanguard Ins. Co. (Polchlopek), 18 NY2d 376, 381
[1966]).  
With that purpose in mind, SUM coverage “is designed to
increase the level of protection afforded to policyholders
injured by negligent drivers who lack adequate liability
insurance” (Matter of Metro. Prop. & Cas. Ins. Co. v Mancuso, 93
NY2d 487, 492 [1999]).  It was devised to mitigate the liability
coverage deficit caused by an inadequately insured vehicle –-
underinsured vehicles.  It was not meant to be restricted to
uninsured motorists.  Here, where there appears to be a parity
between the policies, in a motor vehicle accident involving
numerous passengers, the tortfeasor’s liability will be
dramatically less than the per person coverage under the
claimant’s policy.  SUM coverage was meant to alleviate this
liability gap.  
In conclusion, I believe that the majority has read
into Regulation 35-D an unwarranted and unreasonable limitation
to exclude claimants from SUM coverage.  Clearly, claimants meet
the expressly written criteria for SUM coverage.  Most notably,
they are “other persons injured in the accident,” and thus should
receive SUM benefits.  Accordingly, I respectfully dissent and
would reverse the orders of the Appellate Division.
*   *   *   *   *   *   *   *   *   *   *   *   *   *   *   *   *
In each case:  Order affirmed, with costs.  Opinion by Judge
Jones.  Judges Graffeo, Read, Smith and Pigott concur.  Judge
Ciparick dissents and votes to reverse in an opinion in which
Chief Judge Lippman concurs.
Decided June 4, 2009