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Central Mutual Insurance Co. v. Bemiss

June 25, 2009


The opinion of the court was delivered by: Read, J.

This opinion is uncorrected and subject to revision before publication in the New York Reports.

We are asked in this appeal whether consent-to-settle and subrogation-protection provisions in the supplementary uninsured/underinsured (SUM) endorsement in an automobile liability insurance policy fall by the wayside once an insured has exhausted the available policy limits of a single tortfeasor in a multi-tortfeasor accident. We hold that these provisions remain in force and govern any settlements that the insured may subsequently make with other tortfeasors.


During the morning rush hour on April 12, 2005, a chain-reaction automobile accident unspooled in the west-bound lane of Interstate 90 in the City of Albany when the first car in the ensuing five-vehicle pileup stopped in traffic to avoid becoming entangled in a two-car collision. The vehicle driven by Beverly Bemiss (the third in line in the pileup) was struck twice in the rear -- once by the vehicle driven by Kati Kowalczyk, the fourth in line; and again when the automobile driven by John Genski, the fifth in line, rear-ended Kowalczyk's vehicle, pushing it into the back of Bemiss's vehicle a second time. As a consequence of this accident, Bemiss seriously injured her right foot and ankle, which required surgery to repair the Achilles tendon.

Kowalczyk was insured for motor vehicle liability under a policy issued by Government Employees Insurance Company (GEICO), with bodily injury liability limits of $25,000; Genski was insured under a policy issued by Progressive Casualty Insurance Company, also with bodily injury liability limits of $25,000. Central Mutual Insurance Company was Bemiss's automobile liability insurance carrier. Her single limit policy provided $100,000 per accident for bodily injury and property damage, and a SUM endorsement for $100,000 per accident. The provisions in her SUM endorsement were prescribed by the New York State Department of Insurance (the Department) in Regulation 35-D (11 NYCRR subpart 60-2). And since both Kowalczyk's and Genski's bodily injury liability limits were less than Bemiss's, her SUM coverage was activated or triggered as to each of them (see Matter of Prudential Prop. & Cas. Co. v Szeli, 83 NY2d 681, 685 n. 1, 686-688 [1994]). SUM benefits are not payable, however, until the available policy limits of a single tortfeasor have been exhausted by payment or settlement (see S'Dao v National Grange Mut. Ins. Co., 87 NY2d 853, 854-855 [1995]).

By letter dated July 27, 2006, Bemiss's attorney informed Central that GEICO, Kowalczyk's insurance carrier, had tendered the policy limits of $25,000. He further advised that Bemiss intended to accept this offer and execute a release on or after August 27, 2006 unless Central advanced this amount to her in return for her cooperation in any lawsuit on her behalf. Central did not respond to the letter. Bemiss also at some point agreed to settle with Genski and his insurer, Progressive, for $2,500 -- i.e., less than the $25,000 policy limit. Bemiss never notified Central that she intended to settle with Genski, or solicited Central's consent.

On December 21, 2006, Bemiss executed a single general release in favor of Kowalczyk, GEICO, Genski, and Progressive in consideration of the sum of $27,500 -- $25,000 from GEICO and $2,500 from Progressive. The release did not preserve Central's subrogation rights with respect to any payment that might be made to Bemiss under her SUM coverage. Earlier in December (and therefore before exhausting Kowalczyk's policy), Bemiss served Central with a request for arbitration, seeking $72,500 in SUM benefits.

On January 9, 2007, Central's attorney wrote to Bemiss's attorney to ask whether an action had been filed against Genski. On January 17, 2007, Bemiss's attorney replied that his client had settled with Genski and his insurance carrier for $2,500, and that Bemiss was seeking $72,500 from Central under the SUM endorsement.

By letter dated January 26, 2007, Central disclaimed liability to Bemiss and denied coverage. Specifically referencing Condition 10 (without waiving any other ground that it might have for disclaimer), Central told Bemiss that she had violated policy conditions by "settl[ing] with both responsible parties [i.e., Kowalczyk and Genski] in this loss, and in signing the release, waived [Central's] subrogation rights." Condition 10 allows an insured to collect under SUM coverage in a multiple-tortfeasor accident before exhaustion by settlement or judgment. Specifically, 30 days after having given the insurer notice of a tortfeasor's offer to settle for the maximum available policy limits, the insured may execute a general release with the tortfeasor and retain SUM eligibility unless, in the meantime, the insurer has agreed to advance the settlement amount in exchange for the insured's cooperation with its subrogation claim.

In March 2007, Bemiss served Central with another request for arbitration, having withdrawn the December notice after arbitration was temporarily stayed at Central's behest. She again sought $72,500 in SUM benefits. And Central again successfully moved by order to show cause, entered on March 26, 2007, to stay arbitration temporarily pending disposition of its application for an order permanently staying arbitration and vacating Bemiss's notice.

Central maintained that Bemiss was not entitled to SUM benefits because she did not protect its subrogation rights, give prior written notice of her intent to settle, or obtain its written consent before settling with Genski/Progressive. In opposition, Bemiss argued that "[t]he policy . . . reads that when there are multiple tortfeasors, and one of those tortfeasors offers the maximum coverage under its policy, then written notice must be given of the policy tender before execution of a release. The policy [does not contain] any language that requires the insured to provide written notice for a partial tender from a second tortfeasor."

In May 2007, Supreme Court granted Central's application and permanently stayed arbitration, reasoning that, under the terms of the SUM endorsement, Central "expressly require[d] that it retain the right to subrogate regardless of the exact nature of the settlement." Thus, "[e]ven if the Court were to accept [Bemiss's] argument that once [she] settled for the entire amount of coverage with [GEICO], [she] could settle with Progressive without notice and consent of [Central], this argument does nothing to remedy the fact that [Bemiss] failed to preserve Central's right to subrogate." Bemiss appealed.

The Appellate Division, with one Justice dissenting, affirmed. As an initial matter -- and contrary to Supreme Court's assessment -- both the majority and the dissenting Justice concluded that Condition 10 in the SUM endorsement "permitted [Bemiss] to settle with the first tortfeasor [Kowalczyk] without preserving [Central's] subrogation rights" with respect to Kowalczyk (Matter of Central Mut. Ins. Co. (Bemiss), 54 AD3d 499, 500 [3d Dept 2008]). The majority, however, rejected Bemiss's additional claim that once she qualified for SUM payments by exhausting Kowalczyk's policy, she was free to settle with Genski without ...

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