        SUPREME COURT OF THE STATE OF NEW YORK
           Appellate Division, Fourth Judicial Department

454
CA 09-00404
PRESENT: SMITH, J.P., PERADOTTO, CARNI, LINDLEY, AND MARTOCHE, JJ.


IN THE MATTER OF THE ARBITRATION BETWEEN
ADAM BOBAK, PETITIONER-RESPONDENT,

                    AND                           MEMORANDUM AND ORDER

AIG CLAIMS SERVICES, INC., NEW HAMPSHIRE
INSURANCE COMPANY AND AMERICAN INTERNATIONAL
GROUP, INC., RESPONDENTS-APPELLANTS.


GOLDBERG SEGALLA LLP, BUFFALO (PAUL D. MCCORMICK OF COUNSEL), FOR
RESPONDENTS-APPELLANTS.

THE COSGROVE LAW FIRM, BUFFALO (EDWARD C. COSGROVE OF COUNSEL), FOR
PETITIONER-RESPONDENT.


     Appeal from a judgment (denominated order and judgment) of the
Supreme Court, Erie County (Joseph G. Makowski, J.), entered December
22, 2008 in a proceeding pursuant to CPLR article 75. The appeal was
held by this Court by order entered April 30, 2010, decision was
reserved and the matter was remitted to Supreme Court, Erie County,
for further proceedings (72 AD3d 1651). The proceedings were held and
completed (Paula L. Feroleto, J.).

     It is hereby ORDERED that the judgment so appealed from is
reversed on the law without costs, the petition seeking to confirm the
arbitration award is dismissed and the arbitration award is vacated.

     Memorandum: Respondents appeal from a judgment confirming an
arbitration award. We previously held this case, reserved decision
and remitted the matter to Supreme Court for a determination, after a
framed-issue hearing, whether the third-party vehicle at issue was
covered by any other insurance that would negate the supplemental
uninsured/underinsured motorist (SUM) coverage afforded by the policy
issued by respondent New Hampshire Insurance Company (NHIC) (Matter of
Bobak [AIG Claims Servs., Inc.], 72 AD3d 1651). We also reversed the
order in a related appeal that denied NHIC’s petition seeking a
permanent stay of arbitration, and we remitted the matter to Supreme
Court for, inter alia, a new determination on that petition (Matter of
New Hampshire Ins. Co. [Bobak], 72 AD3d 1647, 1649-1650). Upon
remittal in each case, the court conducted the framed-issue hearing
based only on submitted documents and oral arguments. The court
concluded that NHIC’s SUM coverage was not implicated because
Travelers Insurance Company (Travelers) had issued an excess policy
that would provide $1,000,000 of coverage to petitioner. The court
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                                                         CA 09-00404

also, inter alia, granted a temporary stay of arbitration that would
become permanent upon payment to petitioner of the benefits afforded
by the Travelers policy.

     Initially, we note that the order entered by the court upon
remittal applies only to the order reversed in Matter of New
Hampshire, and we further note that no appeal has been taken from that
order entered upon remittal. Consequently, the contentions of the
parties with respect to the stay of arbitration granted therein are
not before us. Nevertheless, we conclude that the evidence presented
at the framed-issue hearing and the court’s factual findings in that
order are applicable to the issue that is before us after remittal in
Matter of Bobak. Thus, in the interest of judicial economy, we deem
the factual findings made by the court in the order entered upon
remittal in Matter of New Hampshire to be applicable to the appeal
from the judgment before us.

     We conclude that petitioner’s contention that the court erred in
failing to join Travelers and the Ohio Insurance Guaranty Association
(OIGA) as necessary parties is raised for the first time on appeal and
thus is not properly before us (see Levi v Levi, 46 AD3d 519, 520; cf.
Matter of Dioguardi v Donohue, 207 AD2d 922, 922).

     We agree with NHIC that the court erred in confirming the
arbitration award. In a case such as this “[w]here arbitration is
compulsory, our decisional law imposes closer judicial scrutiny of the
arbitrator’s determination under CPLR 7511 (b) . . . To be upheld, an
award in a compulsory arbitration proceeding must have evidentiary
support and cannot be arbitrary and capricious” (Matter of Motor Veh.
Acc. Indem. Corp. v Aetna Cas. & Sur. Co., 89 NY2d 214, 223; see
Matter of Mangano v United States Fire Ins. Co., 55 AD3d 916, 917).
Here, we conclude that there is no evidentiary support for the
arbitrator’s conclusion that petitioner was entitled to collect SUM
benefits from NHIC. The SUM policy provisions state that it affords
coverage where, inter alia, a person covered by the policy is involved
in an accident with a motor vehicle that is uninsured, which includes
a situation in which the other vehicle’s insurer disclaims coverage or
becomes insolvent. Although the evidence before us establishes that
the other vehicle’s primary insurer is insolvent and that no benefits
will be afforded to petitioner by the OIGA, which assumed the
liabilities of that insolvent company, the evidence also establishes
that there is an excess policy issued by Travelers, and that Travelers
did not disclaim coverage. We therefore reverse the judgment, dismiss
the petition seeking to confirm the arbitration award and vacate the
arbitration award.

     All concur except CARNI, J., who dissents and votes to affirm in
the following Memorandum: I concur with the conclusion of my
colleagues that the interest of judicial economy is served by deeming
the factual findings made by Supreme Court in the order entered upon
remittal in Matter of New Hampshire Ins. Co. (Bobak) (72 AD3d 1647) to
be applicable to this appeal. I further concur with the conclusion of
my colleagues that petitioner’s contention that the court erred in
failing to join Travelers Insurance Company (Travelers) and Ohio
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                                                         CA 09-00404

Insurance Guaranty Association as necessary parties is not properly
before us.

     I disagree, however, with the conclusion of my colleagues that
petitioner is not entitled to collect supplementary
uninsured/underinsured motorist (SUM) benefits from respondent New
Hampshire Insurance Company (NHIC). Inasmuch as I conclude that the
court properly confirmed the arbitration award, I respectfully
dissent.

     Petitioner was seriously injured when a truck that he was driving
for his employer was struck by rolls or coils of aluminum that fell
off of a truck owned by B-Right Trucking Company (B-Right) and
operated by Eugene Hughes, now deceased (Hughes). Hughes and B-Right
(collectively, tortfeasors) were insured under a motor vehicle
liability policy issued by Reliance Insurance Company (Reliance)
insuring the B-Right truck. In addition, B-Right was insured under a
“Form Excess Liability Policy,” also entitled a “Commercial General
Liability” policy, issued by Travelers and having a coverage limit in
the amount of $1 million (Travelers excess policy). Petitioner is a
covered person under the SUM endorsement issued by NHIC to
petitioner’s employer, which has a coverage limit in the amount of $1
million (SUM endorsement).

     Petitioner and his wife commenced a personal injury action
against the tortfeasors, among others, and a jury awarded petitioner
personal injury damages against Hughes in the sum of $3,315,000.
Petitioner sought arbitration of his SUM claim and the arbitrator
concluded that the value of petitioner’s injuries exceeded the limits
of NHIC’s SUM coverage and awarded petitioner the SUM coverage limit
of $1 million. Ultimately, this Court directed a framed-issue hearing
on the question of “insurance coverage” (New Hampshire Ins. Co., 72
AD3d at 1650).

     I agree with the majority that the evidence at the hearing
establishes that Reliance is insolvent. Thus, the court properly
identified the threshold issue to be whether the B-Right truck was an
“uninsured motor vehicle” under the SUM endorsement and the parties
have extensively addressed that issue both before the court and on
appeal.

     Section I (c) (3) (iii) of the SUM endorsement defines an
“uninsured motor vehicle” as “a motor vehicle . . . for which . . .
[t]here is a bodily injury liability insurance coverage or bond
applicable to such motor vehicle at the time of the accident, but . .
. [t]he insurer writing such insurance coverage or bond denies
coverage, or . . . becomes insolvent.” Inasmuch as there is no
dispute that the tortfeasors’ insurer, Reliance, is insolvent, there
is no question that petitioner’s SUM coverage is “triggered” by that
section (see Matter of Metropolitan Prop. & Cas. Ins. Co. v
Carpentier, 7 AD3d 627, 628; American Mfrs. Mut. Ins. Co. v Morgan,
296 AD2d 491, 494; see also Insurance Department Regulations [11
NYCRR] § 60-2.3 [f] [I] [c] [3] [iii]). NHIC contends that,
regardless of Reliance’s insolvency, the Travelers excess policy
                                 -4-                           454
                                                         CA 09-00404

constitutes a “bodily injury liability insurance coverage or bond
applicable” to the tortfeasors that prevents the “triggering” of SUM
coverage because the combined Reliance and Travelers policy limits
exceed the SUM coverage available to petitioner. In other words, NHIC
effectively seeks to combine the coverage limits of the Reliance motor
vehicle liability policy with the coverage limits of the Travelers
excess policy for purposes of determining whether the B-Right truck
was an “uninsured motor vehicle” under the SUM endorsement.

     The court concluded and the majority agrees that, notwithstanding
Reliance’s insolvency, the B-Right truck did not constitute an
“uninsured motor vehicle” under the SUM endorsement because B-Right
had $1 million in coverage under the Travelers excess policy, and that
consequently NHIC’s SUM coverage was not implicated. Thus, the
majority concludes that there was no evidentiary support for the
arbitrator’s conclusion that petitioner was entitled to collect SUM
benefits from NHIC. I disagree.

     Section I (c) (1) of the SUM endorsement also defines an
“uninsured motor vehicle” as a vehicle for which “[n]o bodily injury
liability insurance policy or bond applies.” In my view, the only way
the majority can determine that the B-Right truck is not an “uninsured
motor vehicle” is to conclude that an excess policy is a “bodily
injury liability insurance policy” under the SUM endorsement, the
Insurance Law, the Vehicle and Traffic Law and the Insurance
Department Regulations. Thus, the issue presented is whether the term
“uninsured motor vehicle” includes a vehicle that is covered under a
motor vehicle liability policy issued by an insolvent insurance
company when the vehicle is also covered under a commercial general
liability excess policy.

     I conclude that where, as here, a vehicle is insured by a motor
vehicle liability policy issued by an insolvent insurance company and
is thus an “uninsured motor vehicle,” the existence of an excess
insurance policy does not change its status as such. In other words,
an excess or umbrella policy does not constitute a “bodily injury
liability insurance policy” for purposes of determining whether a
motor vehicle is “an uninsured motor vehicle” triggering SUM coverage.
I further conclude that the amount of a tortfeasor’s coverage under a
motor vehicle liability policy may not be combined with the amount of
his or her coverage under a commercial general liability excess policy
in determining whether SUM coverage is implicated.

     Those conclusions are supported by an analysis of article 7 of
the Vehicle and Traffic Law, entitled the Motor Vehicle Safety
Responsibility Act, which requires motor vehicle owners and operators
to obtain a specific type of insurance, namely, a “motor vehicle
liability policy” (Vehicle and Traffic Law § 330 et seq.). Vehicle
and Traffic Law § 345 (a) defines a “motor vehicle liability policy”
as “an owner’s or an operator’s policy of liability insurance
certified as provided in [section 343] . . . as proof of financial
responsibility, and issued . . . by an insurance carrier . . . to or
for the benefit of the person named therein as insured.” Vehicle and
Traffic Law § 343 provides that “[p]roof of financial responsibility
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                                                         CA 09-00404

may be made by filing with the commissioner [of motor vehicles] the
written certificate of any insurance carrier duly authorized to do
business in this state, certifying that there is in effect a motor
vehicle liability policy for the benefit of the person required to
furnish proof of financial responsibility. Such certificate shall
give the effective date of such motor vehicle liability policy . . . ”
(emphasis added). Thus, it is clear from the Vehicle and Traffic Law
and the regulatory scheme that owners and operators of motor vehicles
are required to obtain “motor vehicle liability policies.”

     Although obvious, I further note that excess policies exist only
if there is an underlying policy. Therefore, there must be an
underlying “motor vehicle liability policy” before there can be excess
insurance coverage. Likewise, in order for an owner or operator of a
motor vehicle to be in compliance with the Motor Vehicle Safety
Responsibility Act and be financially secure or “insured” under that
Act, the owner or operator must have a “motor vehicle liability
policy” (Vehicle and Traffic Law §§ 343, 345). Thus, one cannot meet
the financial security requirements of article 7 of the Vehicle and
Traffic Law through excess insurance alone. Here, the insurance
company issuing the tortfeasors’ “motor vehicle liability policy,”
Reliance, is insolvent and the Travelers excess policy provides that
it does not “drop down” in the event of the insolvency of the
insurance company issuing any underlying policy. Consequently, as a
practical matter, the B-Right truck does not have a primary “motor
vehicle liability policy” in place. Even if the Reliance policy were
still in effect, NHIC could not combine the coverage limits of that
policy with the coverage limits of the Travelers excess policy in
order to avoid triggering SUM coverage.

     Although not directly on point, analogous case law of the Second
Department supports that proposition. Specifically, the Second
Department has rejected attempts by SUM claimants to trigger SUM
coverage by combining the liability coverage limits from a motor
vehicle liability policy and an umbrella policy in order to establish
that the tortfeasor’s bodily injury liability limits were less than
those of the claimant (see Matter of State Farm Mut. Auto. Ins. Co. v
Roth, 206 AD2d 376, lv denied 84 NY2d 812; see also Matter of Federal
Ins. Co. v Reingold, 181 AD2d 769, 770-771, lv denied 80 NY2d 755).
In Matter of Astuto v State Farm Mut. Auto. Ins. Co. (198 AD2d 503,
504), the Second Department held that “[t]he petitioner’s attempt to
base his claim on a consideration of the existence of an umbrella
policy issued by a different insurer by which he was also covered is
precluded by the pertinent provision of the policy on which he has
made his claim.” Thus, if under the existing decisional law a
claimant cannot combine coverage limits from different types of
policies in order to trigger SUM coverage, it logically follows that
insurers are precluded from combining coverage limits from different
types of policies to prevent a SUM trigger.

     NHIC further contends that the “all bodily injury liability bonds
and insurance policies” language of Insurance Law § 3420 (f) (2) (A)
includes excess policies. Simultaneously, NHIC contends that the
arbitration should have been stayed because petitioner has not
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                                                         CA 09-00404

exhausted the limits of the excess policy. Likewise, in the framed-
issue hearing, the court concluded that petitioner was required to
exhaust all applicable policy limits, including the Travelers excess
policy, as a condition precedent to obtaining SUM benefits or
proceeding to arbitration. A comparison of NHIC’s contentions,
however, reveals the fatal flaw in its analysis.

     Condition 9 of the SUM endorsement, entitled “Exhaustion
Required,” states that NHIC “will pay under this SUM coverage only
after the limits of liability have been used up under all motor
vehicle bodily injury liability insurance policies” (emphasis added).
An excess policy, however, is not a “motor vehicle liability policy”
(Vehicle and Traffic Law § 345). Therefore, it is logically
inconsistent to posit that a vehicle is not an “uninsured motor
vehicle” because the owner or operator is covered under an excess
policy when that policy is clearly not subject to the exhaustion
requirement because it is not a “motor vehicle liability policy.”

     Insurance Law § 3420 (f) (2) (A) provides that, “[a]s a condition
precedent to the obligation of the insurer to pay under the [SUM]
insurance coverage, the limits of liability of all bodily injury
liability bonds or insurance policies applicable at the time of the
accident shall be exhausted by payment of judgments or settlements.”
I conclude that the phrase “all bodily injury liability . . .
insurance policies” contained in that section does not encompass
excess policies (see Matter of Matarasso [Continental Cas. Co.], 82
AD2d 861, 862, affd 56 NY2d 264; Mass v U.S. Fidelity and Guar. Co.,
222 Conn 631, 639-643, 610 A2d 1185, 1190-1192). Insurance Department
Regulation 35-D, “implements” section 3420 (f) (2) of the Insurance
Law and “establish[es] a standard form for SUM coverage [the
prescribed SUM endorsement], in order to eliminate ambiguity, minimize
confusion and maximize its utility” (11 NYCRR 60-2.0 [a], [c]; see 60-
2.3 [f]). The purpose of Regulation 35-D “is to interpret section
3420 (f) (2) of the Insurance Law, in light of ensuing judicial
rulings and experience” (11 NYCRR 60-2.0 [c]). Condition 9 of the
prescribed SUM endorsement is identical to Condition 9 of the NHIC SUM
endorsement, and provides in pertinent part that the insurer “will pay
under this SUM coverage only after the limits of liability have been
used up under all motor vehicle bodily injury liability insurance
policies or bonds applicable at the time of the accident” (11 NYCRR
60-2.3 [f] [emphasis added]). Thus, Regulation 35-D confirms that the
exhaustion requirement of Insurance Law § 3420 (f) (2) (A) relates to
“motor vehicle bodily injury liability” policies—not excess policies.
Therefore, because the excess policy is not a “motor vehicle bodily
injury liability insurance polic[y]” (11 NYCRR 60-2.3 [f]), I conclude
that petitioner has no obligation to “exhaust” the Travelers excess
policy in order to obtain SUM benefits under the SUM endorsement.

     The next question concerns what effect, if any, the excess policy
has on NHIC’s obligation to pay (as opposed to the question of
coverage) its SUM coverage limits to petitioner. This issue raises
the specter of “offsets” and duplication of benefits. Clearly,
petitioner has a fixed and quantified SUM claim because his damages
exceed $3 million dollars. NHIC contends that, because the Travelers
                                 -7-                           454
                                                         CA 09-00404

excess policy and the SUM endorsement provide the same coverage
limits, Condition 6 of the SUM endorsement, entitled “Maximum SUM
Payments,” precludes payment under the SUM endorsement because those
policies, in effect, cancel each other out. Thus, the question of
“offsets” is clearly raised on appeal. Condition 6 of the SUM
endorsement, setting forth the terms mandated under Regulation 35-D,
provides that “the maximum payment under this SUM endorsement shall be
the difference between (a) the SUM limit; and (b) the motor vehicle
bodily injury liability insurance or bond payments received” from any
negligent party involved in the accident (emphasis added) (see 11
NYCRR 60-2.3 [a] [2]). Thus, because the excess policy is not a
“motor vehicle bodily injury liability insurance” policy, payments
made thereunder cannot serve as an “offset” to the SUM coverage limit
(see 11 NYCRR 60-2.1 [c]).

     Therefore, we must look to the “Non-Duplication” condition of the
SUM endorsement in order to determine whether the Travelers excess
policy affects NHIC’s obligation to pay SUM benefits. Condition 11
(e) of the SUM endorsement states, “[t]his SUM coverage shall not
duplicate . . . [a]ny amounts recovered as bodily injury damages from
sources other than motor vehicle bodily injury liability insurance
policies or bonds” (emphasis added). Thus, the language of that
condition suggests that it does not preclude duplication of insurance
coverage but, rather, it precludes duplication of recovery by a SUM
claimant. The “sources” for purposes of non-duplication of recovery
could include any personal assets of the tortfeasor applied towards
the money judgment or, as in this case, excess or umbrella insurance
payments from non-motor vehicle policies. Therefore, I conclude that,
pursuant to Condition 11 (e), NHIC is not required to pay any amounts
for bodily injury damages that duplicate the amounts recovered by
petitioner (see 11 NYCRR 60-2.3 [f]). I emphasize that in
interpreting Condition 11 (e), there is a significant distinction
between “covered” by and is “recovered” from excess or umbrella
policies (see Matter of CGU Ins. Co. v Nardelli, 188 Misc 2d 560,
568). In other words, that condition is intended to prevent a double
recovery for the same damages and to thereby prevent the injured party
from receiving a windfall (see Matter of Fazio v Allstate Ins. Co.,
276 AD2d 696, 697; see also CNA Global Resource Mgrs. v Berry, 10 Misc
3d 1074[A], 2006 NY Slip Op 50069[U], *7). Petitioner simply cannot
get paid or recover twice for the same damages. Under the facts
presented here, if Travelers and NHIC both pay the full limits of
their policies, there still can be no double recovery of damages by
petitioner. The value of petitioner’s injuries exceeds $3 million and
there is only $2 million in available SUM and excess insurance
coverage. Under the best case scenario, at least with respect to the
SUM and excess insurance limits, petitioner is not going to recover
his damages twice. In fact, he would not recover them once.

     Thus, I would affirm the judgment confirming the arbitration
award.

Entered:   July 6, 2012                         Frances E. Cafarell
                                                Clerk of the Court
