SUPREME COURT OF THE STATE OF NEW YORK

Appellate Division, Fourth Judicial Department

454 

CA 09-00404 

PRESENT: SMITH, J.P., PERADOTTO, CARNI, LINDLEY, AND MARTOCHE, JJ. 

 

IN THE MATTER OF THE ARBITRATION BETWEEN 

ADAM BOBAK, PETITIONER-RESPONDENT,

AND MEMORANDUM AND ORDER

AIG CLAIMS SERVICES, INC., NEW HAMPSHIRE 

INSURANCE COMPANY AND AMERICAN INTERNATIONAL 

GROUP, INC., RESPONDENTS-APPELLANTS.

GOLDBERG SEGALLA LLP, BUFFALO (PAUL D. MCCORMICK OF COUNSEL), FOR

RESPONDENTS-APPELLANTS. 

THE COSGROVE LAW FIRM, BUFFALO (EDWARD C. COSGROVE OF COUNSEL), FOR

PETITIONER-RESPONDENT.

 

Appeal from a judgment (denominated order and judgment) of the

Supreme Court, Erie County (Joseph G. Makowski, J.), entered December

22, 2008 in a proceeding pursuant to CPLR article 75. The appeal was

held by this Court by order entered April 30, 2010, decision was

reserved and the matter was remitted to Supreme Court, Erie County,

for further proceedings (72 AD3d 1651). The proceedings were held and

completed (Paula L. Feroleto, J.). 

It is hereby ORDERED that the judgment so appealed from is

reversed on the law without costs, the petition seeking to confirm the

arbitration award is dismissed and the arbitration award is vacated. 

Memorandum: Respondents appeal from a judgment confirming an

arbitration award. We previously held this case, reserved decision

and remitted the matter to Supreme Court for a determination, after a

framed-issue hearing, whether the third-party vehicle at issue was

covered by any other insurance that would negate the supplemental

uninsured/underinsured motorist (SUM) coverage afforded by the policy

issued by respondent New Hampshire Insurance Company (NHIC) (Matter of

Bobak [AIG Claims Servs., Inc.], 72 AD3d 1651). We also reversed the

order in a related appeal that denied NHIC’s petition seeking a

permanent stay of arbitration, and we remitted the matter to Supreme

Court for, inter alia, a new determination on that petition (Matter of

New Hampshire Ins. Co. [Bobak], 72 AD3d 1647, 1649-1650). Upon

remittal in each case, the court conducted the framed-issue hearing

based only on submitted documents and oral arguments. The court

concluded that NHIC’s SUM coverage was not implicated because

Travelers Insurance Company (Travelers) had issued an excess policy

that would provide $1,000,000 of coverage to petitioner. The court
-2- 454 

CA 09-00404 

also, inter alia, granted a temporary stay of arbitration that would

become permanent upon payment to petitioner of the benefits afforded

by the Travelers policy.

Initially, we note that the order entered by the court upon

remittal applies only to the order reversed in Matter of New

Hampshire, and we further note that no appeal has been taken from that

order entered upon remittal. Consequently, the contentions of the

parties with respect to the stay of arbitration granted therein are

not before us. Nevertheless, we conclude that the evidence presented

at the framed-issue hearing and the court’s factual findings in that

order are applicable to the issue that is before us after remittal in

Matter of Bobak. Thus, in the interest of judicial economy, we deem

the factual findings made by the court in the order entered upon

remittal in Matter of New Hampshire to be applicable to the appeal

from the judgment before us.

We conclude that petitioner’s contention that the court erred in

failing to join Travelers and the Ohio Insurance Guaranty Association

(OIGA) as necessary parties is raised for the first time on appeal and

thus is not properly before us (see Levi v Levi, 46 AD3d 519, 520; cf.

Matter of Dioguardi v Donohue, 207 AD2d 922, 922).

We agree with NHIC that the court erred in confirming the

arbitration award. In a case such as this “[w]here arbitration is

compulsory, our decisional law imposes closer judicial scrutiny of the

arbitrator’s determination under CPLR 7511 (b) . . . To be upheld, an

award in a compulsory arbitration proceeding must have evidentiary

support and cannot be arbitrary and capricious” (Matter of Motor Veh.

Acc. Indem. Corp. v Aetna Cas. & Sur. Co., 89 NY2d 214, 223; see

Matter of Mangano v United States Fire Ins. Co., 55 AD3d 916, 917). 

Here, we conclude that there is no evidentiary support for the

arbitrator’s conclusion that petitioner was entitled to collect SUM

benefits from NHIC. The SUM policy provisions state that it affords

coverage where, inter alia, a person covered by the policy is involved

in an accident with a motor vehicle that is uninsured, which includes

a situation in which the other vehicle’s insurer disclaims coverage or

becomes insolvent. Although the evidence before us establishes that

the other vehicle’s primary insurer is insolvent and that no benefits

will be afforded to petitioner by the OIGA, which assumed the

liabilities of that insolvent company, the evidence also establishes

that there is an excess policy issued by Travelers, and that Travelers

did not disclaim coverage. We therefore reverse the judgment, dismiss

the petition seeking to confirm the arbitration award and vacate the

arbitration award.

All concur except CARNI, J., who dissents and votes to affirm in

the following Memorandum: I concur with the conclusion of my

colleagues that the interest of judicial economy is served by deeming

the factual findings made by Supreme Court in the order entered upon

remittal in Matter of New Hampshire Ins. Co. (Bobak) (72 AD3d 1647) to

be applicable to this appeal. I further concur with the conclusion of

my colleagues that petitioner’s contention that the court erred in

failing to join Travelers Insurance Company (Travelers) and Ohio
-3- 454 

CA 09-00404 

Insurance Guaranty Association as necessary parties is not properly

before us.

I disagree, however, with the conclusion of my colleagues that

petitioner is not entitled to collect supplementary

uninsured/underinsured motorist (SUM) benefits from respondent New

Hampshire Insurance Company (NHIC). Inasmuch as I conclude that the

court properly confirmed the arbitration award, I respectfully

dissent. 

Petitioner was seriously injured when a truck that he was driving

for his employer was struck by rolls or coils of aluminum that fell

off of a truck owned by B-Right Trucking Company (B-Right) and

operated by Eugene Hughes, now deceased (Hughes). Hughes and B-Right

(collectively, tortfeasors) were insured under a motor vehicle

liability policy issued by Reliance Insurance Company (Reliance)

insuring the B-Right truck. In addition, B-Right was insured under a

“Form Excess Liability Policy,” also entitled a “Commercial General

Liability” policy, issued by Travelers and having a coverage limit in

the amount of $1 million (Travelers excess policy). Petitioner is a

covered person under the SUM endorsement issued by NHIC to

petitioner’s employer, which has a coverage limit in the amount of $1

million (SUM endorsement). 

Petitioner and his wife commenced a personal injury action

against the tortfeasors, among others, and a jury awarded petitioner

personal injury damages against Hughes in the sum of $3,315,000. 

Petitioner sought arbitration of his SUM claim and the arbitrator

concluded that the value of petitioner’s injuries exceeded the limits

of NHIC’s SUM coverage and awarded petitioner the SUM coverage limit

of $1 million. Ultimately, this Court directed a framed-issue hearing

on the question of “insurance coverage” (New Hampshire Ins. Co., 72

AD3d at 1650). 

I agree with the majority that the evidence at the hearing

establishes that Reliance is insolvent. Thus, the court properly

identified the threshold issue to be whether the B-Right truck was an

“uninsured motor vehicle” under the SUM endorsement and the parties

have extensively addressed that issue both before the court and on

appeal.

Section I (c) (3) (iii) of the SUM endorsement defines an

“uninsured motor vehicle” as “a motor vehicle . . . for which . . .

[t]here is a bodily injury liability insurance coverage or bond

applicable to such motor vehicle at the time of the accident, but . .

. [t]he insurer writing such insurance coverage or bond denies

coverage, or . . . becomes insolvent.” Inasmuch as there is no

dispute that the tortfeasors’ insurer, Reliance, is insolvent, there

is no question that petitioner’s SUM coverage is “triggered” by that

section (see Matter of Metropolitan Prop. & Cas. Ins. Co. v

Carpentier, 7 AD3d 627, 628; American Mfrs. Mut. Ins. Co. v Morgan,

296 AD2d 491, 494; see also Insurance Department Regulations [11

NYCRR] § 60-2.3 [f] [I] [c] [3] [iii]). NHIC contends that,

regardless of Reliance’s insolvency, the Travelers excess policy
-4- 454 

CA 09-00404 

constitutes a “bodily injury liability insurance coverage or bond

applicable” to the tortfeasors that prevents the “triggering” of SUM

coverage because the combined Reliance and Travelers policy limits

exceed the SUM coverage available to petitioner. In other words, NHIC

effectively seeks to combine the coverage limits of the Reliance motor

vehicle liability policy with the coverage limits of the Travelers

excess policy for purposes of determining whether the B-Right truck

was an “uninsured motor vehicle” under the SUM endorsement.

The court concluded and the majority agrees that, notwithstanding

Reliance’s insolvency, the B-Right truck did not constitute an

“uninsured motor vehicle” under the SUM endorsement because B-Right

had $1 million in coverage under the Travelers excess policy, and that

consequently NHIC’s SUM coverage was not implicated. Thus, the

majority concludes that there was no evidentiary support for the

arbitrator’s conclusion that petitioner was entitled to collect SUM

benefits from NHIC. I disagree.

Section I (c) (1) of the SUM endorsement also defines an

“uninsured motor vehicle” as a vehicle for which “[n]o bodily injury

liability insurance policy or bond applies.” In my view, the only way

the majority can determine that the B-Right truck is not an “uninsured

motor vehicle” is to conclude that an excess policy is a “bodily

injury liability insurance policy” under the SUM endorsement, the

Insurance Law, the Vehicle and Traffic Law and the Insurance

Department Regulations. Thus, the issue presented is whether the term

“uninsured motor vehicle” includes a vehicle that is covered under a

motor vehicle liability policy issued by an insolvent insurance

company when the vehicle is also covered under a commercial general

liability excess policy.

I conclude that where, as here, a vehicle is insured by a motor

vehicle liability policy issued by an insolvent insurance company and

is thus an “uninsured motor vehicle,” the existence of an excess

insurance policy does not change its status as such. In other words,

an excess or umbrella policy does not constitute a “bodily injury

liability insurance policy” for purposes of determining whether a

motor vehicle is “an uninsured motor vehicle” triggering SUM coverage. 

I further conclude that the amount of a tortfeasor’s coverage under a

motor vehicle liability policy may not be combined with the amount of

his or her coverage under a commercial general liability excess policy

in determining whether SUM coverage is implicated. 

Those conclusions are supported by an analysis of article 7 of

the Vehicle and Traffic Law, entitled the Motor Vehicle Safety

Responsibility Act, which requires motor vehicle owners and operators

to obtain a specific type of insurance, namely, a “motor vehicle

liability policy” (Vehicle and Traffic Law § 330 et seq.). Vehicle

and Traffic Law § 345 (a) defines a “motor vehicle liability policy”

as “an owner’s or an operator’s policy of liability insurance

certified as provided in [section 343] . . . as proof of financial

responsibility, and issued . . . by an insurance carrier . . . to or

for the benefit of the person named therein as insured.” Vehicle and

Traffic Law § 343 provides that “[p]roof of financial responsibility
-5- 454 

CA 09-00404 

may be made by filing with the commissioner [of motor vehicles] the

written certificate of any insurance carrier duly authorized to do

business in this state, certifying that there is in effect a motor

vehicle liability policy for the benefit of the person required to

furnish proof of financial responsibility. Such certificate shall

give the effective date of such motor vehicle liability policy . . . ”

(emphasis added). Thus, it is clear from the Vehicle and Traffic Law

and the regulatory scheme that owners and operators of motor vehicles

are required to obtain “motor vehicle liability policies.” 

Although obvious, I further note that excess policies exist only

if there is an underlying policy. Therefore, there must be an

underlying “motor vehicle liability policy” before there can be excess

insurance coverage. Likewise, in order for an owner or operator of a

motor vehicle to be in compliance with the Motor Vehicle Safety

Responsibility Act and be financially secure or “insured” under that

Act, the owner or operator must have a “motor vehicle liability

policy” (Vehicle and Traffic Law §§ 343, 345). Thus, one cannot meet

the financial security requirements of article 7 of the Vehicle and

Traffic Law through excess insurance alone. Here, the insurance

company issuing the tortfeasors’ “motor vehicle liability policy,”

Reliance, is insolvent and the Travelers excess policy provides that

it does not “drop down” in the event of the insolvency of the

insurance company issuing any underlying policy. Consequently, as a

practical matter, the B-Right truck does not have a primary “motor

vehicle liability policy” in place. Even if the Reliance policy were

still in effect, NHIC could not combine the coverage limits of that

policy with the coverage limits of the Travelers excess policy in

order to avoid triggering SUM coverage.

Although not directly on point, analogous case law of the Second

Department supports that proposition. Specifically, the Second

Department has rejected attempts by SUM claimants to trigger SUM

coverage by combining the liability coverage limits from a motor

vehicle liability policy and an umbrella policy in order to establish

that the tortfeasor’s bodily injury liability limits were less than

those of the claimant (see Matter of State Farm Mut. Auto. Ins. Co. v

Roth, 206 AD2d 376, lv denied 84 NY2d 812; see also Matter of Federal

Ins. Co. v Reingold, 181 AD2d 769, 770-771, lv denied 80 NY2d 755). 

In Matter of Astuto v State Farm Mut. Auto. Ins. Co. (198 AD2d 503,

504), the Second Department held that “[t]he petitioner’s attempt to

base his claim on a consideration of the existence of an umbrella

policy issued by a different insurer by which he was also covered is

precluded by the pertinent provision of the policy on which he has

made his claim.” Thus, if under the existing decisional law a

claimant cannot combine coverage limits from different types of

policies in order to trigger SUM coverage, it logically follows that

insurers are precluded from combining coverage limits from different

types of policies to prevent a SUM trigger.

NHIC further contends that the “all bodily injury liability bonds

and insurance policies” language of Insurance Law § 3420 (f) (2) (A)

includes excess policies. Simultaneously, NHIC contends that the

arbitration should have been stayed because petitioner has not
-6- 454 

CA 09-00404 

exhausted the limits of the excess policy. Likewise, in the framedissue hearing, the court concluded that petitioner was required to

exhaust all applicable policy limits, including the Travelers excess

policy, as a condition precedent to obtaining SUM benefits or

proceeding to arbitration. A comparison of NHIC’s contentions,

however, reveals the fatal flaw in its analysis.

Condition 9 of the SUM endorsement, entitled “Exhaustion

Required,” states that NHIC “will pay under this SUM coverage only

after the limits of liability have been used up under all motor

vehicle bodily injury liability insurance policies” (emphasis added). 

An excess policy, however, is not a “motor vehicle liability policy”

(Vehicle and Traffic Law § 345). Therefore, it is logically

inconsistent to posit that a vehicle is not an “uninsured motor

vehicle” because the owner or operator is covered under an excess

policy when that policy is clearly not subject to the exhaustion

requirement because it is not a “motor vehicle liability policy.”

Insurance Law § 3420 (f) (2) (A) provides that, “[a]s a condition

precedent to the obligation of the insurer to pay under the [SUM]

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.” 

I conclude that the phrase “all bodily injury liability . . .

insurance policies” contained in that section does not encompass

excess policies (see Matter of Matarasso [Continental Cas. Co.], 82

AD2d 861, 862, affd 56 NY2d 264; Mass v U.S. Fidelity and Guar. Co.,

222 Conn 631, 639-643, 610 A2d 1185, 1190-1192). Insurance Department

Regulation 35-D, “implements” section 3420 (f) (2) of the Insurance

Law and “establish[es] a standard form for SUM coverage [the

prescribed SUM endorsement], in order to eliminate ambiguity, minimize

confusion and maximize its utility” (11 NYCRR 60-2.0 [a], [c]; see 60-

2.3 [f]). The purpose of Regulation 35-D “is to interpret section

3420 (f) (2) of the Insurance Law, in light of ensuing judicial

rulings and experience” (11 NYCRR 60-2.0 [c]). Condition 9 of the

prescribed SUM endorsement is identical to Condition 9 of the NHIC SUM

endorsement, and provides in pertinent part that the insurer “will pay

under this SUM coverage only after the limits of liability have been

used up under all motor vehicle bodily injury liability insurance

policies or bonds applicable at the time of the accident” (11 NYCRR

60-2.3 [f] [emphasis added]). Thus, Regulation 35-D confirms that the

exhaustion requirement of Insurance Law § 3420 (f) (2) (A) relates to

“motor vehicle bodily injury liability” policies—not excess policies. 

Therefore, because the excess policy is not a “motor vehicle bodily

injury liability insurance polic[y]” (11 NYCRR 60-2.3 [f]), I conclude

that petitioner has no obligation to “exhaust” the Travelers excess

policy in order to obtain SUM benefits under the SUM endorsement. 

The next question concerns what effect, if any, the excess policy

has on NHIC’s obligation to pay (as opposed to the question of

coverage) its SUM coverage limits to petitioner. This issue raises

the specter of “offsets” and duplication of benefits. Clearly,

petitioner has a fixed and quantified SUM claim because his damages

exceed $3 million dollars. NHIC contends that, because the Travelers
-7- 454 

CA 09-00404 

excess policy and the SUM endorsement provide the same coverage

limits, Condition 6 of the SUM endorsement, entitled “Maximum SUM

Payments,” precludes payment under the SUM endorsement because those

policies, in effect, cancel each other out. Thus, the question of

“offsets” is clearly raised on appeal. Condition 6 of the SUM

endorsement, setting forth the terms mandated under Regulation 35-D,

provides that “the maximum payment under this SUM endorsement shall be

the difference between (a) the SUM limit; and (b) the motor vehicle

bodily injury liability insurance or bond payments received” from any

negligent party involved in the accident (emphasis added) (see 11

NYCRR 60-2.3 [a] [2]). Thus, because the excess policy is not a

“motor vehicle bodily injury liability insurance” policy, payments

made thereunder cannot serve as an “offset” to the SUM coverage limit

(see 11 NYCRR 60-2.1 [c]). 

Therefore, we must look to the “Non-Duplication” condition of the

SUM endorsement in order to determine whether the Travelers excess

policy affects NHIC’s obligation to pay SUM benefits. Condition 11

(e) of the SUM endorsement states, “[t]his SUM coverage shall not

duplicate . . . [a]ny amounts recovered as bodily injury damages from

sources other than motor vehicle bodily injury liability insurance

policies or bonds” (emphasis added). Thus, the language of that

condition suggests that it does not preclude duplication of insurance

coverage but, rather, it precludes duplication of recovery by a SUM

claimant. The “sources” for purposes of non-duplication of recovery

could include any personal assets of the tortfeasor applied towards

the money judgment or, as in this case, excess or umbrella insurance

payments from non-motor vehicle policies. Therefore, I conclude that,

pursuant to Condition 11 (e), NHIC is not required to pay any amounts

for bodily injury damages that duplicate the amounts recovered by

petitioner (see 11 NYCRR 60-2.3 [f]). I emphasize that in

interpreting Condition 11 (e), there is a significant distinction

between “covered” by and is “recovered” from excess or umbrella

policies (see Matter of CGU Ins. Co. v Nardelli, 188 Misc 2d 560,

568). In other words, that condition is intended to prevent a double

recovery for the same damages and to thereby prevent the injured party

from receiving a windfall (see Matter of Fazio v Allstate Ins. Co.,

276 AD2d 696, 697; see also CNA Global Resource Mgrs. v Berry, 10 Misc

3d 1074[A], 2006 NY Slip Op 50069[U], *7). Petitioner simply cannot

get paid or recover twice for the same damages. Under the facts

presented here, if Travelers and NHIC both pay the full limits of

their policies, there still can be no double recovery of damages by

petitioner. The value of petitioner’s injuries exceeds $3 million and

there is only $2 million in available SUM and excess insurance

coverage. Under the best case scenario, at least with respect to the

SUM and excess insurance limits, petitioner is not going to recover

his damages twice. In fact, he would not recover them once.

Thus, I would affirm the judgment confirming the arbitration

award.

Entered: July 6, 2012 Frances E. Cafarell

Clerk of the Court