Opinion
108255/04.
Decided February 2, 2005.
In this special proceeding pursuant to CPLR 7503 to permanently stay arbitration of an uninsured motorist claim, the Court is called upon to interpret the term "uninsured motor vehicle" for purposes of Insurance Law §§ 3420(f)(1) and (f)(2), and Regulation 35-D of the Regulations of the Department of Insurance ( 11 NYCRR 60-2.0 et seq.) (hereinafter "Regulation 35-D"). Specifically, the Court is asked to determine whether a vehicle that is covered by a liability insurance policy with a $250,000 deductible is rendered an "uninsured motor vehicle" by the insolvency of the insured. The issue appears to be one of first impression. Taking into account the statutory scheme, pertinent legislative history and relevant case law, the Court concludes that such a vehicle is an "uninsured motor vehicle," for purposes of Insurance Law § 3420(f)(2) and Regulation 35-D but not Insurance Law § 3420(f)(1). Accordingly, for the reasons set forth below, petitioner's motion is denied.
I.Factual Background
Respondents allege injuries sustained in an accident on May 3, 2001, while they were passengers in a motor vehicle operated by non-party Jean Claude Meme and owned by non-party Mercius Chariable. It is undisputed that respondents were covered by an insurance policy issued to Chariable by petitioner Fireman's Fund Insurance Company ("Fireman's") with bodily injury liability limits of $100,000 per person and $300,000 per accident, and uninsured motorist ("UM") coverage of $25,000 per person/$50,000 per accident. In addition, Chariable's policy included a standard Supplemental Uninsured Motorist Endorsement ("SUM Endorsement"). The record is unclear as to the amount of SUM coverage provided under the SUM Endorsement. The other vehicle involved in the accident was a bus owned by non-party Amboy Bus Co. ("Amboy"), and operated by non-party Serge Gourge. It appears that the Amboy bus was insured by proposed additional respondent The Security Insurance Company of Hartford ("Security").
Regulation 35-D of the Regulations of the Department of Insurance ( 11 NYCRR 60-2.0 et seq.) prescribes the precise form to which all SUM endorsements must conform. See 11 NYCRR § 60-2.3(c). As discussed, infra, the SUM Endorsement to the Fireman's Policy is identical to the Rule 35-D form.
The SUM Endorsement provides that the SUM limit under the policy is "(a) The SUM limit stated in the Declarations; or (b) If the bodily injury results in death . . . the higher of the SUM limit stated in the Declarations, or $50,000 for such bodily injury resulting in death sustained by one person as the result of any one accident and, subject to this per person limit, $100,000 for such bodily injury resulting in death sustained by two or more persons as the result of any one accident." See Affirmation of L. Silverman, Exhibit A. The declarations page of the policy does not indicate the amount of SUM coverage, and the parties do not address the issue. Thus, as discussed infra, the amount of SUM coverage is an issue of fact to be determined.
On October 18, 2002, respondents instituted an action (Index No. 27289/02) in Supreme Court, Queens County, against Amboy, Gourge, Meme and Chariable. According to respondents, they were advised by Amboy's attorney, on or about November 26, 2002, that Amboy had filed for Chapter 11 bankruptcy protection in August, 2002. Respondents submit a copy of the November 26, 2002 letter. See Affirmation of S. Wagner, Exhibit C.
By letter dated September 16, 2003, respondents sought to have the stay lifted. See Wagner Aff., Ex. E. Subsequently, respondents received a letter dated October 8, 2003 from Amboy's attorney. The letter, labeled "Re: Daniella Wisham and Mise Anglade," stated as follows:
The letter is addressed to Christoper R. Dohono, III of Stroock, Stroock Lavan, LLP.
We are in receipt of your letter to Christopher Donoho of Stroock, Stroock Lavan regarding the request to modify the automatic stay in the above-referenced claim.
According to the information you have provided, this claim appears to be covered by a policy of insurance issued by Security Insurance Company of Hartford. Due to issues regarding a $250,000 deductible and premiums owed under such policy, the Order allowing the Debtors to modify the automatic stay pursuant to the stipulation annexed to your letter is inapplicable to this claim. Instead, the claim is covered by the Order of the Bankruptcy Court dated May 15, 2003 which established a claim processing program. Accordingly, we are unable to execute the stipulation.
The Debtors are not administering the claim processing program. Instead, we suggest you contact David BenHaim of Schindel, Farman Lipsius LLP. . . .
Id.
Respondents assert that this was their first indication that Amboy had a "self insured retention (i.e. deductible) in the sum of $250,000.00." Affirmation of S. Wagner, ¶ 8-9. Respondents do not indicate in their papers whether they further attempted to have the Amboy stay lifted by contacting Mr. BenHaim, as suggested by Amboy's counsel.
Under the theory that the combination of Amboy's insolvency and the $250,000 deductible entitled them to uninsured/underinsured motorist coverage under the Fireman's policy, respondents notified petitioner of their intent to make an uninsured/underinsured motorist claim. See Wagner Aff. at ¶ 10. The parties disagree as to when respondents notified petitioner of their intent to make a claim. Petitioner insists that it did not receive notice of respondents' claim until it received a letter from respondents dated March 17, 2004, indicating their "desire to file a claim under the Uninsured Motorist clause of [the Fireman's policy]" and attaching respondents' Notice of Intention to Make Claim. See Silverman Aff., Ex. C. Respondents submit copies of letters addressed to petitioner dated May 22, 2001 and August 14, 2001, notifying petitioner of their uninsured motorist claim as follows:
Please note that we have reason to believe the other vehicle involved [in the respondents' accident] was not insured or underinsured. We are thus hereby making and giving you notice of claims by [respondents] under the uninsured motorists endorsement in the policy pursuant to New York State Insurance Law Section 3420 and the supplementary uninsured motorist clause, if applicable.
Wagner Aff., Ex. G.
Petitioner replies that the Court should note that "no certified mail receipts were attached" to the letters submitted by respondents. Reply Affirmation of L. Silverman, ¶ 10. In any event, on April 30, 2004, petitioner sent respondents a letter denying coverage on the grounds that: 1) the Amboy bus was insured at the time of the accident; and 2) respondents' claim was untimely submitted. Respondents sent petitioner a demand for arbitration dated May 13, 2004, which petitioner claims to have received on May 20, 2004; respondents do not dispute the receipt date. On June 1, 2004, petitioner commenced this proceeding.
II.Conclusions of Law A.Stay of Arbitration
Upon receipt of a demand for uninsured motorist arbitration, an insurer may timely institute a special proceeding pursuant to CPLR 7503 to permanently stay the arbitration on the ground that the claimant is not entitled to uninsured motorist coverage. See, e.g., Metropolitan Property Liability Ins. Co. v. Falkovitz, 73 NY2d 798 (1988). An insurer seeking a stay of arbitration must make a prima facie showing that the accident did not involve an uninsured motor vehicle, whereupon, the burden shifts to the claimant. See Eagle Ins. Co. v. Villegas, 307 AD2d 879, (1st Dept. 2003). If the claimant then proffers competent evidence of non-insurance, the burden shifts back to the insurer. See Allstate Ins. Co. v. Holmes, 173 AD2d 260 (1st Dept. 1991).
Notice of petition must be served within 20 days of receiving the demand for arbitration, as required by CPLR 7503(c). Respondents do not dispute that petitioner received their demand on May 20, 2004 and filed the petition on June 1, 2004. Thus, the petition is timely.
Petitioner argues that arbitration should be stayed because the Amboy bus was insured. Respondents concede that the bus was covered by an insurance policy, but submit that the vehicle was, nevertheless, an "uninsured motor vehicle" because the Amboy insurance policy had a $250,000 deductible and Amboy became insolvent after the accident. The record submitted is insufficient to establish whether, as respondents claim, the Amboy bus was covered by a policy with a $250,000 deductible. The only record evidence to that effect is the letter dated October 8, 2003 from Amboy's counsel to respondents referring to "issues regarding a $250,000 deductible and premiums owed under such policy." Without more, this letter fails to establish respondents' assertion regarding the deductible. Indeed, further questions are raised by this statement as to whether the policy was ever in effect due to non-payment of premiums. Thus, the Court hereby orders a hearing to determine: (1) whether the Amboy policy was in effect at the time of respondents' accident; (2) if so, what were its terms; and (3) if respondents' uninsured/underinsured motorist claim was timely made.
As to whether respondents' notice of their intent to make a claim under the uninsured/underinsured endorsement was timely, the Court notes that the burden initially rests with petitioner, and that "letters properly addressed, stamped and mailed are presumed received by the addressee even though the addressee denies receipt of the same." See Aetna Ins. Co. v. Millard, 25 AD2d 341, 343 (1st Dept. 1966).
Nevertheless, the Court will address the threshold question of whether the Amboy bus would be an "uninsured motor vehicle" under the Fireman's policy if, indeed, respondents' claim was timely, and the Amboy policy was viable and included a $250,000 deductible.
B.Statutory Definitions
The definition of "uninsured motor vehicle" under New York law necessarily involves "the interplay among various statutes, regulations, and case law related to UM coverage." See Eagle Ins. Co. v. Hamilton, 4 AD3d 355, 356 (2nd Dept. 2003); Morris v. Progressive Casualty Ins. Co., Inc., 662 F.Supp. 1489, 1492-93 (S.D.NY 1987). Several major statutory frameworks are implicated. To begin, the Financial Security Act ("FSA") (codified at Vehicle and Traffic Law § 310, et seq.), and the Motor Vehicle Accident Indemnification Corporation ("MVAIC") Act (codified at Insurance Law §§ 5201, et seq.), provide protection to innocent victims of automobile accidents against financially irresponsible motorists. New York Insurance Law
§ 3420 further imposes on insurers certain minimum coverage requirements. And, the Public Motor Vehicle Security Fund ("PMV Fund"), codified at Insurance Law § 7601 et seq, protects consumers against the insolvency of automobile liability insurers. Each of these statutes individually, and all combined as a statutory scheme, are intended to provide protection for accident victims from financially irresponsible tortfeasors. Vehicle and Traffic Law § 310; Insurance Law §§ 3420, 5201(b) and 7603; Federal Ins. Co. v. Watnick, 80 NY2d 539 (1992); Country-Wide Ins. Co. v. Wagoner, 45 NY2d 581 (1978); Lloyd v. Motor Vehicle Acc. Indemnification Corp., 23 NY2d 478 (1969); Planet Ins. Co. v. Gunther, 160 Misc 2d 67 (Sup.Ct., Rockland County 1993, Lefkowitz, J.).
1.The Financial Security Act
The FSA derives from the Vehicle and Traffic Law of 1929 Article 6-A. It states as its purpose the recompense of innocent victims of motor vehicle accidents for injury inflicted by motorists financially unable to compensate the victims for their negligence. Declaration of Purpose, Vehicle and Traffic Law § 310(2). See Rosado v. Eveready Ins. Co., 34 NY2d 43, 48 (1974) (purpose of FSA is "to protect the innocent victims of traffic accidents").
In keeping with its objective, the FSA requires proof of financial security as a prerequisite to registration of a motor vehicle. Vehicle and Traffic Law § 312. Financial security is "evidenced by proof of insurance or evidence of a financial security bond, a financial security deposit or qualification as a self-insurer under section three hundred sixteen of this article. . . ." Id. In turn, Vehicle and Traffic Law § 316 provides that the commissioner may issue a certificate of self-insurance "when he is reasonably satisfied that such person is possessed and will continue to be possessed of financial ability to respond to judgment obtained against such person, arising out of the ownership, maintenance, use or operation of any such person's motor vehicles."
2.The Motor Vehicle Accident Indemnification Corporation
Concluding that the FSA had failed to make provision for innocent victims of motor vehicle accidents caused by out-of-state vehicles, unidentified vehicles which leave the accident scene, uninsured vehicles, stolen and unregistered vehicles, vehicles driven withgout the owner's permission and where the insurer disclaimed coverage, the legislature enacted the MVAIC Act.
The MVAIC Act provides that a "qualified person" (as defined in Section 5202 therein) injured in a collision in New York with an "uninsured motor vehicle," who recovers a final judgment which remains unpaid, may obtain an order directing the MVAIC to pay the judgment, up to certain limits. Insurance Law § 5210. An "uninsured motor vehicle" is defined by the MVAIC Act as one as to which there is not "maintained proof of financial security as defined in [the FSA (Vehicle and Traffic Law § 311)]. . . ." Insurance Law § 5202 (c) and (d). Proof of financial security under Vehicle and Traffic Law § 311 means "proof of ability to respond in damages for liability arising out of the ownership, maintenance or use of a motor vehicle as evidenced by an owner's policy of liability insurance." Federal Ins. Co. v. Watnick, 80 NY2d 539 (1992).
Recovery under Section 5210 is limited to $25,000 per person/per accident for injury (up to $50,000 regardless of number of injured); $50,000 per person/per accident for death (up to $100,000 regardless of number of deaths). See Insurance Law §§ 5210(a)(1)-(4).
"Uninsured motor vehicle" is further defined in the Comprehensive Motor Vehicle Reparations Act ("CMVR Act"), incorporated into the MVAIC by reference in a 1984 amendment to the Act. The CMVR Act defines an "uninsured motor vehicle" as one owned by a "financially irresponsible motorist" as defined in the MVAIC Act, i.e., an "owner, operator or other person legally responsible for the operation of an uninsured motor vehicle involved in an accident resulting in personal injury or death who did not have in effect at the time of such accident either:
(1) a valid and collectible policy of bodily injury liability and property damage liability insurance or bond with applicable limits at least equal to those specified in [Vehicle and Traffic Law § 311]; or
The Court is not aware of any reported case construing the term "valid and collectible" in the context of uninsured/underinsured motorist coverage. The only reported case of which the Court is aware which construes Insurance Law § 5202(j), does not deal with the term. See In re Paulino, 196 Misc 2d 887 (Civ.Ct. Queens County, August 11, 2003) (Elliot, J.C.C.). In general, an insurance policy is not "valid and collectible" where, and to the extent that, the insurer is insolvent. See Ambassador Assoc. v. Corcoran, 79 NY2d 871 (1992) (excess insurance policy covering against loss not covered by "valid and collectible" underlying policy held applicable to loss to extent underlying insurer is insolvent).
(2) a certificate of self insurance . . .; or
(3) who has not otherwise complied with the provisions of [Vehicle and Traffic Law § 312] . . .
3.Insurance Law § 3420
At the same time as MVAIC was instituted, Insurance Law former § 167 (2-a) (now § 3420(f)(1)), was enacted to provide "additional protection" to accident victims. See State-Wide, supra at 302. Section 167 (2-a) required that automobile liability insurance policies include a UM Indemnification Endorsement to "compensate victims of accidents caused by 'uninsured motorists,'" and placed the payment obligation for such risks on the MVAIC. See State-Wide, supra at 302. However, a 1965 amendment to Section 167 (2-a) shifted the payment obligation for the UM Indemnification Endorsement to the insurers. See id. Reflecting this risk-shifting intent, Insurance Law Section 3420(f)(1) now provides that:
Section 167 was derived from Section 109 of the Insurance Law of 1909, which "had as its purpose the protection of injured plaintiffs." See Rosado, 34 NY2d 43, 48 (1974) (citing Jackson v. Citizens Cas. Co., 277 NY 385, 390 (1938)).
As originally enacted, Section 167 (2-a) was consistent with the combined effect of the FSA and MVAIC Act, i.e., that a statutory fund was available to compensate victims for losses caused by financially irresponsible motorists.
Insurance Law former § 167(2-a), amended by Laws of 1965 (ch 322) (eff. July 1, 1965), substituted the words "it [the insurer] will pay to the insured" for the words, "there will be paid to the insured by the Motor Vehicle Accident Indemnification Corporation."
No policy insuring against loss resulting from liability imposed by law for bodily injury or death suffered by any natural person arising out of the ownership, maintenance and use of a motor vehicle by the insured shall be issued or delivered by any authorized insurer upon any motor vehicle then principally garaged or principally used in this state unless it contains a provision whereby the insurer agrees that it will pay to the insured, as defined in such provision, subject to the terms and conditions set forth therein to be prescribed by the board of directors of the Motor Vehicle Accident Indemnification Corporation and approved by the superintendent, all sums, not exceeding a maximum amount or limit of twenty-five thousand dollars exclusive of interest and costs, on account of injury to and all sums, not exceeding a maximum amount or limit of fifty thousand dollars exclusive of interest and costs, on account of death of one person, in any one accident, and the maximum amount or limit, subject to such limit for any one person so injured of fifty thousand dollars or so killed of one hundred thousand dollars, exclusive of interest and costs, on account of injury to, or death of, more than one person in any one accident, which the insured or his legal representative shall be entitled to recover as damages from an owner or operator of an uninsured motor vehicle, a stolen vehicle, a motor vehicle operated without permission of the owner, an insured motor vehicle where the insurer disclaims liability or denies coverage or an unregistered vehicle because of bodily injury, sickness or disease, including death resulting therefrom, sustained by the insured. . . .
In 1977, the legislature enacted Insurance Law § 3420(f)(2)(A), which provides that any automobile liability insurance policy must:
at the option of the insured, [in addition to the minimum uninsured motorist coverage required under Section 3420(f)(1)] provide supplementary uninsured/underinsured motorists insurance for bodily injury, in an amount up to the bodily injury liability insurance limits of coverage provided under such policy, subject to a maximum of two hundred fifty thousand dollars because of bodily injury to or death of one person in any one accident and, subject to such limit for one person, up to five hundred thousand dollars because of bodily injury to or death of one or more persons in any one accident.
Insurance Law § 3420(f)(2)(A).
The net effect of the FSA, MVAIC Act, and Insurance Law §§ 3420(f)(1) and (2), which are in pari materia and should be read together ( see Morris, supra; Richter v. Motor Vehicle Accident Indemnification Corp., 59 Misc 2d 374 (Sup.Ct. Erie County 1969, Catalano, J.)), is that New York law guarantees recovery, up to certain defined limits, for innocent motorists, for injuries caused by automobile collisions where judgments remain unpaid due to the inability of the judgment debtors (i.e., the owner or operator of the vehicle) to pay the judgment. In particular, the risk posed by uninsured motorists, originally borne by the statutory fund, is now placed directly upon the insurers. In addition, insurers are required to offer supplementary uninsured/underinsured motorist coverage, at the option of the insured.
4.PMV Fund
In 1947, the Legislature created the Motor Vehicle Liability Security Fund to provide "protection for victims of vehicular accidents where the insolvency of an insurer doing business in New York prevented it from meeting its insurance obligations. The recovery provided by the fund was coextensive with the contractual liability of the defaulting insurer." See State-Wide Ins. Co. v. Curry, 43 NY2d 298, 301-302 (1977). The fund, now called the Public Motor Vehicle Liability Security Fund ("PMV Fund"), continues in existence under the authority of Insurance Law § 7604, which provides, in pertinent part, that:
The fund shall be used to pay allowed claims of injured parties and policyholders under insurance polices or surety bonds, remaining unpaid, in whole or in part, by reasons of the insurer's insolvency or its inability to meet its insurance obligations (including any obligation for the return of unearned premiums) provided the insurer has made payments to the fund . . .
Id.
Thus, the PMV Fund plays an analogous role to the FSA, MVAIC and Insurance Law §§ 3420(f)(1) and (2). Whereas the latter provide protection against, inter alia, motorists who have acted irresponsibly by failing to procure insurance, the former protects against the risk of an unpaid judgment where the motorist is properly insured, but the insurer has become insolvent. C.Interpretation of "Uninsured Motor Vehicle" 1.Precedential Authority
The Court notes that Insurance Law §§ 3420(a)(1) and (a)(2) provide that the insolvency of the insured does not release the insurer from liability for payments under the policy. This issue is not implicated in the discussion here because the limits of respondents' UM and SUM coverage are less than the alleged deductible on the Amboy policy.
The same year that Insurance Law § 3420(f)(2) was enacted, the Court of Appeals dealt with the issue of "whether a person involved in an automobile accident is an 'uninsured motorist' [under Section 3420(f)(1)] . . . where the person is insured by a domestic insurer which becomes insolvent subsequent to the accident." See State-Wide Ins. Co. v. Curry, 43 NY2d 298, 301 (1977). The court answered the question in the negative. The plaintiffs in State-Wide (who had not purchased SUM coverage) sought to recover against their insurer on the ground that the offending vehicle's insurer was insolvent. The court held that the plaintiffs had no right to proceed against their insurer because they were afforded a statutory right to proceed against the PMV Fund (then called the "Security Fund"). The court reasoned thus:
the purpose of the [Section 3420(f)(1)] Indemnification Endorsement . . . is to protect persons who are injured by financially irresponsible motorists by making available a $10,000 fund to which an injured person may look for compensation . . . This statutory scheme presupposes that no other liability coverage exists to compensate innocent victims of motor vehicle accidents. Where an injured person may look to the Security Fund . . . there is no need to protect such injured person under the Indemnification Endorsement, since compensation is otherwise available.
Id. at 302.
The court supported its conclusion by citation to "the legislative memorandum discussing the purpose sought to be achieved by the 1958 MVAIC legislation which included subdivision 2-a of Section 167," which explained that the legislation "[was] designed to close the gaps which continue to exist under the Compulsory Insurance Law that was passed in 1956, with respect to assuring payment of compensation to innocent victims of motor vehicle accidents.' State-Wide, supra at 303 (quoting NY Legis Ann, 1958, p. 299). Recognizing that Section 167 "should be liberally applied so that its purpose of protecting accident victims will be accomplished," the court held that there was no need to "close the gap" under the circumstances because the plaintiffs had a statutory remedy.
Eight years later, in Reichel v. Government Empls. Ins. Co., 66 NY2d 1000 (1985), the Court of Appeals analyzed whether the definition of "uninsured motorist" was the same for purposes of the standard UM Endorsement (Section 3420(f)(1)), as for the statutory SUM Endorsement (Section 3420(f)(2)). The court concluded that it was not the same. The court looked to the MVAIC Act, which defined an "uninsured motor vehicle" as a motor vehicle other than one for which proof of "financial security" (under the FSA) has been provided. See Insurance Law § 5202(c) and (d); Vehicle and Traffic Law § 311. The court reasoned that the "statutory allowance for supplementary uninsured motorists insurance coverage," (i.e., Section 3420(f)(2)), "expands the 'uninsured motorists' category to include one who, while maintaining proof of financial responsibility as required by law, and thus being an 'insured motorist,' nevertheless may be considered an 'uninsured motorist' because he is 'underinsured' when compared to the coverage of an insured who has exercised the option to purchase supplementary insurance." Reichel, supra at 1003.
Subsequently, in 1993, the Superintendent of Insurance promulgated Regulation 35-D under the authority of Insurance Law §§ 201, 301, and 3420(f)(1) and (2). See American Manufacturers Mut. Ins. Co. v. Morgan, 296 AD2d 491, 492 (2nd Dept. 2002) (citing 11 NYCRR 60-2.0 et seq.; NY Reg, June 30, 1993, at 16-17). Pursuant to Regulation 35-D, all SUM endorsements must include the following definition of "Uninsured Motor Vehicle":
The term 'uninsured motor vehicle' means a motor vehicle that, through its ownership, maintenance or use, results in bodily injury to an insured, and for which:
(1) no bodily injury liability insurance policy or bond applies to such vehicle (including a vehicle that was stolen, operated without the owner's permission, or unregistered) at the time of the accident; or
(2) neither owner or driver can be identified (including a hit-and-run vehicle), and which causes bodily injury to an insured by physical contact with the insured or with a motor vehicle occupied by the insured at the time of the accident . . .
(3) there is a bodily injury liability insurance coverage or bond applicable to such motor vehicle at the time of the accident, but:
(i) the amount of such insurance coverage or bond is less than the third-party bodily injury liability limit of this policy; or
(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; or
(iii) the insurer writing such insurance coverage or bond denies coverage, or such insurer is or becomes insolvent.
The term 'uninsured motor vehicle' does not include a motor vehicle that is:
(1) insured under the liability coverage of this policy; or
(2) owned by you, as the named insured, or your spouse residing in your household; or
(3) self-insured within the meaning of the financial responsibility law of the state in which the motor vehicle is registered, or any similar state or federal law, to the extent that the required amount of such coverage is equal to, or greaer than, the third-party bodily injury liability limits of this policy . . .11 NYCRR § 60-2.3(c).
In Morgan, supra, 296 AD2d 491(2nd Dept. 2002), the Appellate Division held, for the first time in any reported case, that for purposes of coverage under the standard SUM Endorsement (as mandated by Regulation 35-D), a vehicle is rendered an "uninsured motor vehicle" by the insolvency of its insurer. See id. at 493 (overruling the "only reported post-Regulation 35-D case, Matter of Government Empls. Ins. Co. v. Silber, 178 Misc 2d 451 (Sup.Ct. Nassau County, October 6, 1998) (Lockman, J.S.C.), which [was] factually identical to the proceeding at bar [in Morgan]"); accord Eagle Ins. Co. v. Hamilton, 4 AD3d 355 (2nd Dept. 2004). The plaintiff in Morgan was insured under a policy including the mandatory Section 3420(f)(1) UM Endorsement as well as a SUM endorsement which was identical to that prescribed by Regulation 35-D. After the accident, the tortfeasor's insurer became insolvent and the plaintiff sought to recover against its insurer. The insurer moved to stay arbitration, arguing that the offending vehicle was not an "uninsured motor vehicle" under the Court of Appeals' decision in State-Wide. The Appellate Division disagreed. The Morgan court held that the basis for the decision in State-Wide was that: (1) the "offending vehicle whose insurer becomes insolvent could not be classified as uninsured under the definition set forth in the relevant statute [Section 3420(f)(1)],"and (2) "the injured motorist could look for compensation to the security fund." Id. at 493. Those very same bases, held the court, distinguished the Morgan case from that in State-Wide. Citing the Court of Appeals' decision in Reichel, in which the court "stated that the 'statutory allowance for supplementary uninsured motorist insurance coverage expands the "uninsured motorist" category,'" and that "a financially responsible motorist for purposes of the compulsory provisions of Insurance Law § 3420(f)(1), may, under certain circumstances, be considered an uninsured motorist for purposes of Insurance Law § 3420(f)(2)," the Morgan court held that "[b]y a parity of reasoning, under the SUM endorsement's expanded definition of uninsured motor vehicle, one whose insurer becomes insolvent is considered uninsured, even though that very same motorist would not be considered uninsured for purposes of the compulsory uninsured motorist provisions of Insurance Law § 3420(f)(1)." Morgan, supra at 729.
In support of its holding, the court in Morgan observed that the Superintendent of Insurance, in response to public comment regarding potential conflicts between Regulation 35-D and the Court of Appeals' decision in State-Wide, stated:
'While the Court's rationale [in State-Wide] is a reasonable one with respect to the compulsory uninsured motorists coverage, supplementary uninsured motorists coverage is an optional additional coverage. The individual insured for supplementary uninsured motorists coverage should not be required to wait for a recovery from the Security Fund on behalf of the insolvent insurer. Since the SUM insurer has a subrogation right against the insolvent insurer, the Security Fund would still remain liable, but the insured would be provided a more prompt recovery from his or her own insurer.
Id. at 728 (quoting NY Reg, July 8, 1992, at 10).
2.The Present Matter
Applying the foregoing statutory and jurisprudential authorities, the Court concludes that if the Amboy bus was covered by an insurance policy with a $250,000 deductible, Amboy's subsequent insolvency rendered the bus an "uninsured motor vehicle" under Regulation 35-D and Insurance Law § 3420(f)(2), but not under 3420(f)(1). The legislature proclaimed it a "matter of grave concern" that innocent victims of automobile accidents were not adequately protected by the FSA and CMVR Act, and thus, intended the MVAIC Act to "clos[e] such gaps . . . through the continued operation of the motor vehicle accident indemnification corporation." Insurance Law § 5201 (L. 1984, c. 367, § 1). The Court of Appeals recognized this intent in State-Wide, though it found it inapplicable to the facts presented there.
Without doubt, respondents here were not adequately protected by the FSA and CMVR Act from the risk of a collision with a vehicle owned by a fiscally unsound entity whose insurance policy included a $250,000 deductible. Such a vehicle poses an unreasonably high risk of causing injury to innocent motorists for which there is no solvent source of recovery. The PMV Fund provides no remedy because it is the insolvency of the owner/operator, not its insurer, that is at issue. Nor does the MVAIC directly provide a remedy, because its payment limits are coextensive with the compulsory uninsured motorist coverage limits, and therefore, do not act as a guarantee for supplemental insurance coverage. Indeed, were the Amboy bus to be considered an "insured motor vehicle" under these circumstances, respondents' SUM coverage, with a maximum of $100,000 for a multiple death accident, may be rendered a nullity. This result would be contrary to the clear intent of the legislature, recorded in the MVAIC Act statement of purpose, that the legislation fill the gaps in coverage caused by the failure of the FSA and CMVR Act to compensate victims of motor vehicles involving, inter alia, uninsured vehicles. See Morris, supra at 1492. This result would also be contrary to the admonishment of the Court of Appeals that "the interpretation of statutes relating to uninsured motorist coverage . . . must be interpreted as a whole, giving the words a meaning which serves rather than defeats the over-all legislative goals." See Allstate Ins. Co. v. Shaw, 52 NY2d 818, 820 (1980) (citations omitted). Thus, the Court concludes that the facts presented here, unlike in State-Wide, do represent a situation in which the MVAIC Act, which should be "liberally applied" so as to "close the gap" created by the failure of the FSA and CMVR Act.
For the MVAIC payment limits, see supra note 5.
The Court adopts the reasoning of the Second Department in Morgan. There, the court held that the "greater breadth of SUM coverage" and "expanded definition of uninsured motor vehicle" recognized by the Court of Appeals in Reichel, supra, supported the conclusion that the insolvency of the tortfeasor's insurer gives the plaintiff a cause of action against its insurer, which may then seek subrogation against the insolvent insurer. The Morgan court noted that the result comported with the Superintendent's intent in promulgating Regulation 35-D, by affording the plaintiff "a more prompt recovery" by proceeding in arbitration against its own insurer. See Morgan, supra at 493-494. Similarly, here, respondents, who purchased supplemental insurance from petitioner, should be afforded a prompt recovery by way of arbitration against their own insurer. In turn, petitioner, may seek recovery by way of subrogation as a creditor of Amboy. To the extent that such subrogation is impeded by Amboy's insolvency, it is more in keeping with the legislative intent behind the FSA, the MVAIC Act and Insurance Law § 3420(f)(2) that this risk be borne by the insurer, not the motorist. Accordingly, it is
ORDERED that the petition to stay arbitration is granted to the extent that a trial is directed of the preliminary issues as to: (1) whether the Amboy vehicle was covered by an insurance policy at the time of respondents' accident; (2) if so, what were the policy's terms; and (3) was respondents' uninsured/underinsured motorist claim timely made; and (4) was the Amboy vehicle an "uninsured motor vehicle" under the statutes cited herein, and according to the conclusions of law set forth herein, and the arbitration is stayed pending such trial; and it is further
ORDERED that the Clerk of the Trial Support Office is directed to assign this matter to an appropriate part for trial upon receipt of a copy of this order with notice of entry, the filing of a note of issue and a statement of readiness, and the payment of appropriate fees, if any; and it is further
ORDERED that a copy of this order with notice of entry be served upon the attorneys for the respondent and the arbitrator within 20 days of entry hereof; and it is further
ORDERED that Amboy Bus Company and The Security Insurance Company of Hartford shall be added as party respondents upon service upon said party respondents of a copy of this order with notice of entry together with copies of all papers previously served in the proceeding; and it is further
ORDERED that the caption of this proceeding is amended to reflect inclusion of said additional party respondents and the Clerk of this Court and the Clerk of the Trial
Support Office (Room 158), upon service on each of them of a copy of this order with notice of entry, shall mark their records to reflect the amendment.