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The Rogak Report: 08 Feb 2005 ** Uninsured Motorists -- Insolvent Insured **

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  • Lawrence Rogak
    WHERE INSURED WITH BIG S.I.R. BECOMES INSOLVENT, UM COVERAGE IS TRIGGERED Fireman s Fund Insurance Co. v. Wisham, NYLJ 2/07/05 (Supreme Court, New York County)
    Message 1 of 1 , Feb 7, 2005
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      Fireman's Fund Insurance Co. v. Wisham, NYLJ 2/07/05 (Supreme Court,
      New York County) (KORNREICH, j)

      In a case of first impression, this Court tackled the question of
      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. In determining that the answer is
      yes, the UM insurer's petition for a stay was denied.

      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, the Respondents were injured in a collision. The
      respondents were covered by an insurance policy issued to Chariable
      by Fireman's Fund Insurance Company with bodily injury liability
      limits of $100,000 per person and $300,000 per accident, and
      uninsured motorist coverage of $25,000 per person/$50,000 per
      accident (there was also SUM coverage in an undisclosed amount). The
      other vehicle involved in the accident was a bus owned by non-party
      Amboy Bus Co. and operated by non-party Serge Gourge. The Amboy bus
      was insured by proposed additional respondent The Security Insurance
      Company of Hartford, but that policy had a $250,000 deductible, or

      The Respondents sued Amboy, Gourge, Meme and Chariable. They were
      advised by Amboy's attorney that Amboy had filed for Chapter 11
      bankruptcy protection in August, 2002.

      Respondents filed a UM claim with Firemen's under the theory that
      Amboy's insolvency, coupled with a $250,000 s.i.r., rendered
      Amboy "uninsured." Firemen's filed this Petition for a stay.

      The Court concluded 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)

      "Without doubt, respondents here were not adequately protected by
      the FSA and [MVAIC] 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. 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.' Thus, the Court
      concludes that the facts presented here... represent a situation in
      which the MVAIC Act... should be 'liberally applied' so as to 'close
      the gap' created by the failure of the FSA and CMVR Act."

      "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."

      The Court ordered a framed issue hearing to determine the specifics
      of Amboy's insurance policy.
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