Montfort, Healy successfully moves to stay SUM arbitration under the terms of a commercial auto policy

Montfort, Healy was successful in arguing to stay a supplementary underinsured motorist (SUM) coverage arbitration. The insured vehicle in this case was owned by a corporation. The president and sole shareholder of the corporation was injured in a two-car collision while a passenger in another vehicle owned and operated by a colleague. He claimed that, when the accident happened, he was being driven to a dinner meeting where he intended to discuss one of his corporation’s computer projects. After settling with the carrier for the adverse vehicle, he demanded SUM arbitration with the insurer of the vehicle owned by his corporation. Montfort, Healy, in representing the corporation’s insurance carrier, moved to stay arbitration on the ground that the president of the corporation did not qualify as an insured under the terms of its policy.

The issue in the case was whether the insurer of the corporation’s petition to stay the proceedings was timely. While the corporation’s carrier did not deny the petition to stay the proceeding was outside of the 20-day statutory period under CPLR § 7503(c), their counsel, Montfort Healy, instead argued that the statutory requirement does not apply if there is no agreement between the parties to arbitrate. The opposition argued that, since the policy had an arbitration provision and the injured party is the president and sole shareholder of the corporation, then they are bound by the arbitration agreement.

In relying on similar cases, the Court recognized that whether the corporation’s insurer is bound by the 20-day filing period relies on whether the president of the corporation is “insured” as per the policy.

The policy in question read as follows:

Any person while acting in the scope of that person’s duties for you, except with respect to the use and operation by such person of a motor vehicle not covered under this policy, where such person is: (a) your employee and you are a fire department; (b) your member and you are a fire company, as defined in General Municipal Law section 1000; (c) your employee and you are an ambulance service, as defined in Public Health Law section 3001; or (d) your member and you are a voluntary ambulance service, as defined in Public Health Law section 3001.

The question for the court then became the scope of the “exception” in the part of the clause beginning with the word “except.” The court had to decide whether the scope of the exception was the entire remaining portion of the clause, or if the “exception” is limited to the phrase separated by the commas, namely “except with respect to the use and operation by such person of a motor vehicle not covered under this policy.”

In interpreting the clause, the court determined that the presence of the commas before “except” and after “policy” were simply grammatical borders to the clause. Therefore, the president must also show that he is one of the people as described in (a) through (d) in order to be “insured” under the policy. Because he failed to make a showing, the Court found he is not an insured as defined by the policy and thus, there is no agreement to arbitrate between the parties. Therefore, the application was granted, and the Court permanently stayed the arbitration.

To read a full copy of the decision click here.