One of the most significant provisions in the Supplementary Uninsured/Underinsured Motorist Endorsement—New York (the SUM Endorsement)—promulgated and adopted by the then-entitled New York State Insurance Department, now known as the Department of Financial Services) as Regulation 35-D, effective Oct. 1, 1993 (see 11 N.Y.C.R.R. §60-2.3, et seq., amended most recently on May 11, 2018; Aug. 1, 2017; June 28, 2017; and April 16, 2013.), is the “Condition,” currently set forth in paragraph 5(b), which has become known as the “offset” or “reduction in coverage” provision, and provides, as follows:

“Regardless of the number of insureds, our maximum payment under this SUM endorsement shall be the difference between:

(a) the SUM Limits; and

(b) the motor vehicle bodily injury liability insurance or bond payments received by the insured or the insured's legal representative, from or on behalf of all persons that may be legally liable for the bodily injury sustained by the insured.”

Notice the singular nature of the italicized language above. Take note as well that the definition of the word “Insured” in the SUM Endorsement—also in the singular—clearly recognizes that there can and may be more than one insured making a claim under the SUM Endorsement. Yet, the reference in the offset/reduction in coverage provision was not written in the plural, or even in the alternative, such as “the insured or other person making claim” (a phrase that appears several times in the “Notice and Proof of Claim” Condition of the SUM Endorsement [¶ 2]). [Condition 2 of the SUM Endorsement includes the following pertinent provisions: “As soon as practicable, the insured or other person making claim shall give us written notice of claim under the SUM coverage;” “As soon as practicable after our written request, the insured or other person making claim shall give us written proof of claim …;” “The insured and every other person making claim hereunder shall, as may reasonably be required, submit to examination under oath …”) (emphasis added).] Instead, the drafters of the Regulation 35-D SUM Endorsement chose specifically not to use such expansive language in the offset/reduction of coverage section, but, rather, to refer (as they did in numerous other provisions in the Endorsement) to each insured/claimant singularly and individually.

Question Presented

The question thus arises, which has been addressed by numerous courts over the years, whether the offset/reduction in coverage provision may be applied by the insurer solely to the amount received by the individual insured/claimant, or, in the alternative, whether the SUM carrier is entitled to an offset or reduction in coverage for the full or total amount paid by the tortfeasor's insurer to all insureds/claimants, as a whole. Although one might argue that logic and venerable principles of policy interpretation would seem to dictate the former, rather than the latter, and that the drafters' choice of language ought not be disregarded or assumed to be irrelevant or immaterial, but, rather, should be given the significance it connotes as the words of one (the Superintendent of Insurance) who may reasonably be presumed to have said what he meant, and meant what he said, as will be seen, the courts have been applying the contrary rule for many years.

Rules of Construction

It is a long-standing and well-recognized proposition that the courts are bound to enforce an insurance contract as written. See Valente v. Prudential Prop. & Cas. Ins. Co., 77 N.Y.2d 894, 896 (1991); Moshiko v. Seiger & Smith, 137 A.D.2d 170, 175 (1st Dept. 1988), aff'd 72 N.Y.2d 945 (1988). “A court may neither make nor vary an insurance contract by extending coverage beyond the fair intent and meaning of the agreement, and the liability of the insurer cannot be enlarged by implication beyond the express terms of the contract.” Moshiko, supra. It is axiomatic that “a contract is to be interpreted so as to give effect to the intention of the parties as expressed in the unequivocal language employed.” Breed v. Insurance Co. of N.Am., 46 N.Y.2d 351, 355 (1978); see also Sanabria v. American Home Assurance Co., 68 N.Y.2d 866, 867 (1986). Thus, where the provisions of a policy are clear and unambiguous, they must be given their plain and ordinary meaning, and courts should refrain from rewriting the agreement. Sanabria, supra, 68 N.Y.2d at 867 (citing U.S.F. & G. Co. v. Annunziata, 67 N.Y.2d 229 (1986); Government Employees Ins. Co. v. Kligler, 42 N.Y.2d 863, 864 (1977). In such circumstances, courts “should not strain to superimpose an unnatural and unreasonable construction.” Maurice Goldman & Sons v. Hanover Ins. Co., 80 N.Y.2d 986 (1993).

Furthermore, in construing an insurance policy, the court must examine the entire contract to determine its purpose and effect and the apparent intent of the parties. A. Meyers & Sons Corp. v. Zurich American Ins. Group, 74 N.Y.2d 298, 303 (1989). A policy must be read in a practical way, not so as to revise and extend or contract the risk, but with a view toward what was reasonably intended by the parties at the time the policy was written. Moshiko, supra; Baughman v. Merchants Mut. Ins. Co., 87 N.Y.2d 589, 593 (1996).

These concepts are not new and reflect settled contract interpretation principles. Almost 50 years ago, the Court of Appeals noted that “[t]he language employed in the 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. Standard Accident Ins. Co., 7 N.Y.2d 422, 430 (1960); see also Album Realty Corp. v. American Home Assur. Co., 80 N.Y.2d 1008, 1010 (1992). In interpreting provisions in an insurance policy, the court has consistently made clear that the words employed are to be viewed from the standpoint of the average person applying common speech. Buckner v. MVAIC, 66 N.Y.2d 211, 213-14 (1985); Ace Wire & Cable Co. v. Aetna Cas. & Sur. Co., 60 N.Y.2d 390, 398 (1983); Miller v. Continental Ins. Co., 40 N.Y.2d 675, 676 (1976).

Application of these principles to the question presented would appear to mandate the conclusion that it would be error to construe the words “the insured” in the offset/reduction in coverage provision to mean “the insureds” or “all insureds/claimants.” The language of the Endorsement is clearly in the singular and not the plural. The use of “the” as a modifier for the term “insured” appears to indicate further an intent to refer to each independent insured. A consumer of insurance is not concerned with cumulative benefits paid by an insurer, but, rather, with the benefits received by each insured, i.e., him or herself. Moreover, the meaning of policy provisions should not shift and change based solely upon the number of people making claim and/or the timing of their claims. It is difficult to argue that an insured/claimant reading the policy provision at issue would know, understand, or be led to believe, that his recovery would be dependent upon the recovery of other people involved in his accident. The policy says the offset is based upon the payments he or she, “the insured,” receives from the tortfeasor. Simply put, it would appear that there is no reason to assume that the singular “the insured” intends to signify the plural “insureds.”

Notably, such an interpretation would be consistent with another well-established principle of Insurance Law, i.e., that each insured person is entitled to have the policy viewed as separate and distinct as to him or her. See Greaves v. Public Service Mutual Ins. Co., 5 N.Y.2d 120 (1959) (“each individual insured, although not named in the policy must be treated as if he had a separate policy of his own”); Morgan v. Greater New York Taxpayers Mutual Ins. Assn., 305 N.Y. 243 (1953); Fadden v. Cambridge Mut. Fire Ins. Co., 27 A.D.2d 487, 488 (3d Dept. 1967); see also Lane v. Security Mut. Ins. Co., 96 N.Y.2d 1 (2001) (through the use of the language “the insured” in the standard policy, the statute [Ins. L. 3404] delineates independent liabilities and obligations as to each insured).

'Butler': Third Department

Indeed, such was the conclusion of the Appellate Division, Third Department in Butler v. New York Central Mutual Fire Ins. Co., 274 A.D.2d 924 (3d Dept. 2000). There, the plaintiff was injured in a two-car accident; her mother, a passenger in the vehicle, was killed. Plaintiff commenced an action against the driver of the adverse vehicle, which was settled for the limits of the policy, $25,000. The wrongful death action on behalf of the mother was settled for $30,000. Plaintiff then passed away. Subsequently, an action was brought for SUM coverage benefits from the policy issued to the adverse driver, which had a $50,000 limit. The defendant insurer moved for summary judgment, arguing that the $55,000 paid by the liability carrier for the other vehicle in settlement, an amount which exceeded the SUM policy limit, and the offset provisions of the SUM endorsement, precluded any claim for SUM benefits. The trial court granted the motion, finding the endorsement clear and unambiguous, but the Third Department reversed, finding that “the average insured would reasonably expect that $25,000 of SUM coverage would be available under defendant's policy. Such an expectation would be consistent with the avowed purpose of SUM coverage, which is to protect the insured against accidents with both uninsured and underinsured motorists (see 11 NYCRR 60–2.1) … .”

In accepting the plaintiff's argument that the offset for her claim was only $25,000, leaving her with $25,000 in SUM benefits under the policy, the Third Department held that both the plaintiff and her mother fell within the policy definition of an insured, but noted that it was unclear whether the reference to “insured” in paragraph 6(b) referred to “each independent insured,” as argued by the plaintiff, or to “a cumulative grouping” of all who qualified as insureds, as contended by the defendant. The court concluded that this uncertainty created an ambiguity, “which must be construed against the insurer and in favor of the insured (see Guardian Life Ins. Co. v Schaefer, 70 N.Y.2d 888, 890; Matter of Dube v. Horowitz, 258 A.D.2d 724, 725).” [It should be noted that, 15 years later, in State Farm Mutual Auto. Ins. Co. v. Fitzgerald, 25 N.Y.3d 799 (2015), the Court of Appeals held that the rule of contra proferentem (construction of ambiguities in an insurance policy against the insurer) does not apply in the context of the SUM Endorsement because the SUM insurer “did not choose the terms of the SUM Endorsement here of its own accord, but, rather, was required to offer SUM coverage in compliance with the terms of Insurance Law §3420(f)(2)(A) and Department of Insurance regulations,” and, therefore, the courts “must interpret the SUM Endorsement and the language of the statute in the manner intended by the neutral sources of that enactment (see generally Governer's Approval Mem., Bill Jacket, L.1977, Ch. 892; from Executive Secretary of NY Law Rev Comm'n to Governor's Counsel, March 28, 1958, Bill Jacket, L. 1958, Ch. 577).”]

Other Departments Offer Differing View

In Graphic Arts Mutual Ins. Co. v. Dunham, 303 A.D.2d 1038 (4th Dept. 2003), amended 306 AD3d 953 (4th Dept. 2013), the Fourth Department declined to follow the Third Department's decision in Butler.

There, in a case in which three people—a mother, father and infant child—were injured, and the mother and child recovered a total of $100,000 in settlement of their actions against the tortfeasor, the court held that the father (who apparently did not receive any payment from the tortfeasor's insurer), was precluded from making an Underinsured Motorist claim under his own $100,000 SUM policy by the terms of the “Maximum SUM Payments” provision thereof. Notwithstanding that said provision referred to “the motor vehicle bodily injury liability insurance or bond payments received by the insured [singular],” the court held that “if respondent Gary Dunham were permitted to collect on his SUM claim, respondents [plural] would receive in excess of the $100,000 to which they are entitled under the policy.”

In GEICO v. Young, 39 A.D.3d 751 (2d Dept. 2007), the Second Department lined up on the side of the Fourth Department, by holding, in a case wherein four individual insureds/claimants made claim against GEICO's 25/50 SUM policy, after the tortfeasors' insurer paid its full $50,000 policy limits to the insureds/claimants, that the SUM insurer properly offset the full $50,000 received by the claimants, as a group, from the tortfeasors' insurer against the SUM limits, thereby precluding any recovery for any individual claimant under the SUM Endorsement.

Subsequently, and similarly, in Clarendon National Ins. Co. v. Nunez, 48 A.D.3d 460 (2d Dept. 2008), and Allstate Ins. Co. v. Rivera, 50 A.D.3d 680 (2d Dept. 2008)—both of which were aff'd. sub. nom, Allstate Ins. Co. v. Rivera, 12 N.Y.3d 602 (2009), cases involving multiple claimants and minimum limit insurance policies, the Second Department rejected the claimants' SUM claims on the basis that the SUM insurer was “entitled to offset the $50,000 received by the respondents [plural] from the tortfeasor's insurer against the SUM limits of its policy, thereby precluding any recovery under the SUM endorsement.” [Notably, in affirming the Nunez and Rivera decisions discussed above, the Court of Appeals did not address the offset/reduction in coverage issue at all, as its affirmance was based upon a different ground, despite the fact that the issue was raised by the claimants in their Briefs and oral argument.]

In Rivera v. Amica Mut. Ins. Co., 91 A.D.3d 562 (1st Dept. 2012), the First Department aligned itself with the Fourth Department in Dunham, supra, and the Second Department in Young, supra, and against the Third Department in Butler, supra, holding that the offset/reduction in coverage provision was not ambiguous, where the Declarations “clearly set forth a 'per accident' limit,” and affirming the Supreme Court's determination that the SUM insurer was entitled to an offset from its single-limit SUM coverage for the amount received by both claimants from the tortfeasor's insurer.

Recent Decisions

More recently, in New York Central Mutual Fire Ins. Co. v. Baker, 156 A.D.3d 1456 (4th Dept. 2017), the Respondent was injured in an accident while riding as a passenger in a vehicle that was rear-ended by another vehicle, and then propelled into oncoming traffic, where his vehicle was struck again by a third vehicle. Respondent, the driver of the host vehicle, and the driver of the third vehicle all pursued personal injury claims against the owner and operator of the second vehicle. The $100,000 per accident limits of the second vehicle's bodily injury liability coverage were offered to the three claimants (including Respondent), to be divided in equal shares of $33,333.33 each. When Respondent subsequently sought SUM benefits from the insurer of the host vehicle, that insurer, New York Central Mutual, argued that it was entitled to aggregate the amounts received by Respondent and the driver of the host vehicle from the second vehicle's insurer in calculating the offset for the SUM benefits under its policy, and that since that amount, i.e., $66,666.66, was greater than the SUM limit of $50,000 per accident, the arbitration demanded by Respondent should be permanently stayed.

The Supreme Court granted New York Central Mutual's petition to stay arbitration based upon the offset permitting SUM limits to be reduced by the motor vehicle liability payments made on behalf of the tortfeasor. The Appellate Division affirmed, holding that once the second vehicle insurer tendered the policy limit, “the exclusion in the SUM endorsement that limited SUM payments to the difference between the limits of SUM coverage and the insurance payments received [by the host driver and the Respondent] from any person legally liable for bodily injuries applied.” The court concluded that inasmuch as New York Central properly offset the $66,666.66 received by its insureds against its $50,000 SUM limits, “respondent was precluded from any recovery under the SUM endorsement.”

And, just last month, in Farm Family Cas. Ins. Co. v. Portillo, _ A.D.3d _, _ N.Y.S.3d _, 2019 WL 1646328, 2019 N.Y. Slip Op 02869 (2d Dept. 2019), where the Respondent and two other occupants of the same vehicle received a total of $100,000 from the tortfeasor's insurer, Allstate, split equally among the three individuals, the court held: “It was proper to offset the total received by all three insureds from Allstate against the SUM limit under the petitioner's policy, thereby precluding any recovery under the SUM endorsement,” citing Young, supra, and Dunham, supra. Accordingly, the court affirmed the grant of Farm Family's Petition to Stay Arbitration of the individual Respondent's SUM claim.

Conclusion

Of course, one's opinion on the question presented may depend on, or at least be colored by, the identity of the party he or she represents. In view of the importance of this issue, perhaps some guidance and clarification from the Department of Financial Services, or the Court of Appeals, if an appropriate cases reaches it, would be helpful and in order.

Jonathan A. Dachs is a partner at Shayne, Dachs, Sauer & Dachs in Mineola. He is the author of New York Uninsured and Underinsured Motorist Law & Practice (LexisNexis/Matthew Bender 2016, 2017, 2018).