MEJIA v. SANTOS (2005)

Plaintiff seeks relief pursuant to N.Y. Ins. Law §§ 5201(b)(6) and 5206(e), to join the Motor Vehicle Accident Indemnification Corporation (MVAIC) in this action against an uninsured owner of a motor vehicle that plaintiff claims injured him July 22, 1998, or to sue MVAIC directly on that claim.   The relief sought requires the court to determine an issue not squarely addressed before:  whether an owner or operator of a motor vehicle involved in a collision is a “financially irresponsible motorist” requiring MVAIC's defense and potential indemnification, N.Y. Ins. Law §§ 5202(j), 5206(e), where the vehicle is insured by a domestic insurer that becomes insolvent after the collision.

I. UNDISPUTED FACTS

On July 22, 1998, plaintiff, a minor, was a passenger in a motor vehicle owned by defendant Santos and operated by defendant Guzman, which struck a motor vehicle owned by defendant Ortega and operated by defendant Bruno.   On August 5, 1998, plaintiff's attorney mailed to MVAIC a Notice of Intention to Make Claim Against MVAIC for damages from that collision.   MVAIC received that notice, but the notice did not indicate that either Santos's vehicle or Ortega's vehicle was uninsured.   Instead, the notice listed Reliance Insurance Company and Allstate Insurance Company as the insurers of Santos's vehicle and Ortega's vehicle respectively.

On March 8, 1999, plaintiff's attorney received a notice from Allstate Insurance that it never had an insurance policy in effect covering Ortega's vehicle.   Until this motion, however, plaintiff never notified MVAIC that Allstate Insurance denied coverage of that vehicle.

After plaintiff sought coverage from Reliance Insurance Company, his attorney received a copy of a notice dated May 1, 2002, to Santos and Guzman from the State of New York Insurance Department Liquidation Bureau.   The notice stated first that Reliance Insurance was insolvent and in liquidation, and as of December 14, 2001, the New York State Superintendent of Insurance was appointed Ancillary Receiver of Reliance Insurance in New York. Upon review of plaintiff's claim, the notice further stated that the claim was covered by the New York Public Motor Vehicle Liability Security (PMV) Fund, but that:

At this time, the PMV Fund is unable to provide either a defense to or indemnification of this claim insofar as the PMV Fund is financially strained․ Thus you are responsible for the payment of any ․ costs and expenses relating to this claim.

Reasonable and necessary costs and expenses you are required to pay as a result of this claim may be submitted to the Liquidation Bureau upon the claims resolution.

Please note that the ancillary receivership order stays all actions against the policyholders of Reliance for a period of 180 days․

Aff. of Claire M. Garcia, Ex. 5. Thus plaintiff was precluded from seeking relief from Santos's insurer or the Liquidation Bureau as of May 1, 2002;  until at least June 12, 2002, 180 days after the ancillary receivership order;  and until the claims resolution.

II. RELIEF AGAINST MVAIC BASED ON ORTEGA'S LACK OF INSURANCE

 Plaintiff is not entitled to seek relief against MVAIC based on the lack of insurance coverage for Ortega's vehicle because plaintiff failed to notify MVAIC that vehicle was uninsured within 180 days after March 8, 1999, when his attorney received notice that the vehicle was not insured by Allstate Insurance.  N.Y. Ins. Law § 5208(a)(1) and (3);  McCray v. Motor Vehicle Acc. Indem. Corp., 232 A.D.2d 948, 949, 648 N.Y.S.2d 815 (3d Dep't 1996);  Wilcox v. Motor Vehicle Acc. Indem. Corp., 187 A.D.2d 909, 910-11, 590 N.Y.S.2d 314 (3d Dep't 1992).   See Travelers Ins. Co. v. Morzello, 221 A.D.2d 291, 292, 634 N.Y.S.2d 111 (1st Dep't 1995);  Vil v. Motor Vehicle Acc. Indem. Corp., 304 A.D.2d 588, 757 N.Y.S.2d 591 (2d Dep't 2003).   As a result, MVAIC was prevented from investigating and perhaps challenging the validity of that denial.

III. WHETHER SANTOS IS UNINSURED SUCH THAT PLAINTIFF MAY SEEK RELIEF AGAINST MVAIC

 A “financially irresponsible motorist” requiring MVAIC's defense and potential indemnification, N.Y. Ins. Law §§ 5202(j), 5206(e), includes the owner or operator “of an uninsured motor vehicle” involved in a collision causing personal injury, “who did not have in effect at the time ” of the collision, N.Y. Ins. Law § 5202(j) (emphasis added), a “collectible policy of liability insurance or bond with applicable limits.”  N.Y. Ins. Law § 5202(j)(1) (emphasis added).   An “uninsured motor vehicle,” N.Y. Ins. Law § 5202(d), means a motor vehicle other than an “insured motor vehicle,” which is one for which the owner maintains “proof of financial security.”  N.Y. Ins. Law § 5202(c).  E.g., Morris v. Progressive Cas. Ins. Co., 662 F.Supp. 1489, 1493 (S.D.N.Y.1987).  “Financial security” means “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,” N.Y. Veh. & Traf. Law § 311(3) (emphasis added), which is a policy “affording coverage” at a minimum level prescribed by regulations.  N.Y. Veh. & Traf. Law § 311(4) (emphasis added).

Santos did have a policy of liability insurance from Reliance Insurance “in effect at the time” his vehicle was involved in the collision causing plaintiff injury.  N.Y. Ins. Law § 5202(j).  Two further, related issues, however, remain.

A. Collectibility

First, even though Reliance Insurance was not judicially declared insolvent until after the collision, was the policy uncollectible earlier, at the time of the collision?   The factual record currently sheds no light on this issue.

Second, is a policy's collectibility, like the effectiveness, actually to be determined as of the time of the collision?   Interpretation of N.Y. Ins. Law § 5202(j)(1) begins with the statute's literal language, which if unambiguous, limits the court's interpretation to giving that language “its natural and most obvious sense.”  N.Y. Statutes § 94;  People v. Bolson, 185 Misc.2d 753, 754, 713 N.Y.S.2d 664 (Sup.Ct. Queens Co.2000), aff'd, 284 A.D.2d 340, 725 N.Y.S.2d 577 (2d Dep't 2001);  Commissioners of State Ins. Fund v. Brooklyn Barber Beauty Equip., 191 Misc.2d 1, 4, 740 N.Y.S.2d 180 (Civ.Ct. N.Y. Co.2001).   See Drew v. Schenectady County, 88 N.Y.2d 242, 246, 644 N.Y.S.2d 471, 666 N.E.2d 1344 (1996);  Ball v. Allstate Ins. Co., 81 N.Y.2d 22, 25, 595 N.Y.S.2d 711, 611 N.E.2d 750 (1993);  Washington Post Co. v. New York State Ins. Dept., 61 N.Y.2d 557, 565, 475 N.Y.S.2d 263, 463 N.E.2d 604 (1984).   See also N.Y. Statutes § 76;  King v. Cuomo, 81 N.Y.2d 247, 253, 597 N.Y.S.2d 918, 613 N.E.2d 950 (1993).   Ordinarily, a claimant does not seek to collect a liability insurance policy's proceeds at the precise time of the injury for which he seeks compensation.   In fact, it is virtually impossible to conceive of such a situation, particularly since liability for the injury will not be determined until later.   E.g., Van Den Essen v. Motor Vehicle Acc. Indem. Corp., 147 A.D.2d 136, 140, 541 N.Y.S.2d 852 (2d Dep't 1989).

Construing collectibility as referring to a time after the injury, moreover, is consistent with judicial application of a “collectible” insurance policy in other contexts.   Although a policy was valid and in effect at the time of the injury for which compensation is sought, it is not “valid and collectible” where and to the extent the insurer later becomes insolvent.   See Ambassador Assocs. v. Corcoran, 168 A.D.2d 281, 282, 562 N.Y.S.2d 507 (1st Dep't 1990), aff'd, 79 N.Y.2d 871, 581 N.Y.S.2d 276, 589 N.E.2d 1258 (1992);  Pergament Distribs. v. Old Republic Ins. Co., 128 A.D.2d 760, 761, 513 N.Y.S.2d 467 (2d Dep't 1987).   Moreover, consistent with the ordinary sequence of events set forth above, the operative date for determining MVAIC's liability based on the lack of a collectible policy is after the date the collision occurred.   E.g., Van Den Essen v. Motor Vehicle Acc. Indem. Corp., 147 A.D.2d at 140, 541 N.Y.S.2d 852.

This construction is also consistent with the definition of an “uninsured motor vehicle.”  N.Y. Ins. Law § 5202(d) and (j).  Even if Santos had a liability insurance policy in effect for his vehicle, if the policy did not provide an “ability to respond in damages for liability arising out of” the vehicle's ownership or use, N.Y. Veh. & Traf. Law § 311(3) (emphasis added), or “afford coverage” at the prescribed level, N.Y. Veh. & Traf. Law § 311(4) (emphasis added), then his vehicle is “uninsured.”  N.Y. Ins. Law § 5202(d) and (j).

Certainly if, upon further development of the record, the facts establish that Santos's Reliance Insurance policy was uncollectible at the time of the collision, then, absent other recourse available to plaintiff, Santos would be a “financially irresponsible motorist” requiring MVAIC's defense and potential indemnification.  N.Y. Ins. Law §§ 5202(j), 5206(e).   According to the principles outlined, however, the court would reach the same result if the policy later became uncollectible, preventing an ability to respond in damages and failing to afford coverage.  N.Y. Veh. & Traf. Law § 311(3) and (4).

B. Other Available Recourse

Assuming the policy is uncollectible, the remaining questions concern the availability to plaintiff of other recourse.  (1) Does the State Liquidation Bureau's notice of May 1, 2002, constitute a disclaimer of liability or denial of coverage by the insurer, triggering MVAIC's coverage?  N.Y. Ins. Law § 5201(b)(6).  (2) If not, has the Liquidation Bureau subsequently disclaimed or denied coverage?  (3) In the event of such a denial, when did plaintiff notify MVAIC of the Liquidation Bureau's action?  N.Y. Ins. Law § 5208(a)(3).

 An insurer's insolvency, in itself, does not render the insurer's policy uncollectible or the insured a “financially irresponsible motorist.”   N.Y. Ins. Law §§ 5202(j), 5206(e).   See State-Wide Ins. Co. v. Curry, 43 N.Y.2d 298, 303, 401 N.Y.S.2d 196, 372 N.E.2d 31 (1977);  Eagle Ins. Co. v. St. Julian, 297 A.D.2d 737, 738, 747 N.Y.S.2d 773 (2d Dep't 2002);  American Mfrs. Mut. Ins. Co. v. Morgan, 296 A.D.2d 491, 492-93, 746 N.Y.S.2d 726 (2d Dep't 2002).   While the insurer became insolvent after the collision involving Santos's vehicle and plaintiff as a passenger, Santos's insurance policy survived, and the PMV Fund assumed the policy obligations owed to the insured to cover his liability to plaintiff.  Matter of Union Indem. Ins. Co. of NY, 92 N.Y.2d 107, 113, 127, 677 N.Y.S.2d 228, 699 N.E.2d 852 (1998);  State-Wide Ins. Co. v. Curry, 43 N.Y.2d at 303, 401 N.Y.S.2d 196, 372 N.E.2d 31;  Eagle Ins. Co. v. Hamilton, 16 A.D.3d 498, 501, 791 N.Y.S.2d 605 (2d Dep't 2005).   The PMV Fund provides coverage for injured parties' allowed claims that remain unpaid due to an insurer's insolvency.  N.Y. Ins. Law § 7604(a).   As long as Santos's insurer, Reliance Insurance, paid into the PMV Fund, N.Y. Ins. Law § 7604(b), plaintiff's recourse is against the PMV Fund via the State Superintendent of Insurance.  N.Y. Ins. Law §§ 7607(a), 7608.

 MVAIC is a remedy of final resort, not an alternative remedy.   Plaintiff may not choose between the PMV Fund and MVAIC.   The statutory authorization for MVAIC presupposes that no other coverage is available to compensate plaintiff.   As long as he may resort to the PMV Fund, he does not need MVAIC for protection.  Matter of Union Indem. Ins. Co. of NY, 92 N.Y.2d at 113, 127, 677 N.Y.S.2d 228, 699 N.E.2d 852;  State-Wide Ins. Co. v. Curry, 43 N.Y.2d at 302-303, 401 N.Y.S.2d 196, 372 N.E.2d 31;  Eagle Ins. Co. v. St. Julian, 297 A.D.2d at 738, 747 N.Y.S.2d 773.

 If the PMV Fund denies plaintiff recovery, however, then MVAIC is his only remaining remedy.  State-Wide Ins. Co. v. Curry, 43 N.Y.2d at 304, 401 N.Y.S.2d 196, 372 N.E.2d 31.   Although Reliance Insurance insured Santos's vehicle when plaintiff was injured, so that plaintiff may not avail himself of MVAIC's coverage via N.Y. Ins. Law § 5201(b)(3), and Reliance Insurance never disclaimed or denied coverage, N.Y. Ins. Law § 5201(b)(6);  State-Wide Ins. Co. v. Curry, 43 N.Y.2d at 303, 401 N.Y.S.2d 196, 372 N.E.2d 31, the fund that now stands in Reliance's place may have denied coverage.   The statutes authorizing MVAIC's defense and indemnification are to be “liberally applied” to accomplish their purpose:  to “close gaps” in assuring compensation to innocent victims of motor vehicle collisions.  Id. See Allstate Ins. Co. v. Killakey, 78 N.Y.2d 325, 328, 574 N.Y.S.2d 927, 580 N.E.2d 399 (1991).   To construe N.Y. Ins. Law §§ 5202(j) and 5206(e) narrowly, to exclude the PMV Fund's denial of coverage, making the policy in effect for Santos's vehicle uncollectible, would frustrate the legislative intent.   See N.Y. Ins. Law § 5202(j);  State-Wide Ins. Co. v. Curry, 43 N.Y.2d at 303, 401 N.Y.S.2d 196, 372 N.E.2d 31.

 The purpose of the statutory scheme requiring insurers to provide coverage to their insureds when injured by uninsured motor vehicles, N.Y. Ins. Law § 3420(f)(1), is comparable:  to provide coverage “to insured persons who suffer automobile accident injuries at the hands of financially irresponsible motorists.”  Matter of Liberty Mut. Ins. Co., 82 N.Y.2d 57, 61, 603 N.Y.S.2d 409, 623 N.E.2d 536 (1993);  Federal Ins. Co. v. Watnick, 80 N.Y.2d 539, 542-43, 592 N.Y.S.2d 624, 607 N.E.2d 771 (1992);  Rowell v. Utica Mut. Ins. Co., 77 N.Y.2d 636, 640, 569 N.Y.S.2d 399, 571 N.E.2d 707 (1991);  Country-Wide Ins. Co. v. Wagoner, 45 N.Y.2d 581, 586, 412 N.Y.S.2d 106, 384 N.E.2d 653 (1978) (emphasis added).   The difference here is that the MVAIC statutory scheme is to provide coverage to an uninsured person, a passenger of the vehicle against which plaintiff claims, rather than the occupant of another vehicle carrying its own uninsured motorist (UM) coverage under § 3420(f)(1).   If the PMV Fund's denial of coverage to a person with UM coverage under § 3420(f)(1) may trigger the UM coverage, then the very same denial by the PMV Fund may trigger MVAIC coverage, just as Reliance's own denial would have.  N.Y. Ins. Law § 5201(b)(6);  Eagle Ins. Co. v. Hamilton, 16 A.D.3d at 503, 791 N.Y.S.2d 605;  American Mfrs. Mut. Ins. Co. v. Morgan, 296 A.D.2d at 494, 746 N.Y.S.2d 726.   See Allstate Ins. Co. v. Killakey, 78 N.Y.2d at 328, 574 N.Y.S.2d 927, 580 N.E.2d 399;  Morris v. Progressive Cas. Ins. Co., 662 F.Supp. at 1492.

IV. DISPOSITION

Consequently, plaintiff shall serve a supplemental motion, comparable to this motion against MVAIC, and this order with notice of entry, on the Superintendent of the New York State Insurance Department, in his capacity as the administrator of the New York Public Motor Vehicle Liability Security Fund, within 20 days after service of this order with notice of entry on or by plaintiff.   The court orders a hearing on when Santos's Reliance Insurance policy became uncollectible;  whether the State Liquidation Bureau has denied coverage of plaintiff's claim;  and, if so, when plaintiff notified MVAIC of the Liquidation Bureau's action.   Plaintiff, MVAIC, and the Superintendent of the New York State Insurance Department, if plaintiff has served the Superintendent as required above, shall appear November 14, 2005, at 9:30 a.m., in Part 27, Room 706, to schedule the hearing.

After the hearing, the court will determine the relief to which plaintiff is entitled against MVAIC.   This decision constitutes the court's order.   The court will mail copies to the attorneys for plaintiff and for MVAIC.

LUCY BILLINGS, J.