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Limits of Underinsured Auto Coverage Eroded by Settlement Payment (NY)

April 1, 2016

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In <em><a href="http://www.nycourts.gov/reporter/3dseries/2016/2016_02061.htm" target="_blank" rel="noopener">Nafash v Allstate Ins. Co</a></em>., the plaintiff sued his own automobile insurer to try to recover supplementary uninsured/underinsured motorist (SUM) coverage for injuries he sustained in a motor vehicle accident.
In the decision, the Court summarized the purpose of SUM coverage: “when a policyholder purchases SUM coverage in New York, he or she is insuring against the risk that a tortfeasor "(1) may have no insurance whatsoever; or (2) even if insured, is only insured for third-party bodily injury at relatively low liability limits, in comparison to the policyholder's own liability limits for bodily injury sustained by third-parties."
In this case, plaintiff settled against the adverse driver for the entire policy limits of $100,000. He then sought to recover $100,000 under his SUM coverage with Allstate.
Allstate argued that key language in the policy’s SUM endorsement precluded plaintiff from recovering. The policy language at issue provided, in pertinent part, that "[t]he maximum amount payable under SUM coverage shall be the policy's SUM limits, reduced and thus offset by motor vehicle bodily injury liability insurance policy or bond payments received from, or on behalf of, any negligent party involved in the accident."
The Court agreed, finding that the $100,000 SUM coverage was reduced by the underlying settlement; and in this case the SUM coverage was reduced to zero as plaintiff received $100,000 from the other driver’s policy.
Thanks to George Parpas for his contribution to this post and please write to <a href="mailto:mbono@wcmlaw.com" target="_blank" rel="noopener">Mike Bono</a> for more information.
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