Member of LLC May Claim Underinsured Motorist Coverage
In the Matter of United Financial Casualty Company v. Alan Tekel, 2019-10964, 2020 NY Slip Op 03919, Supreme Court of The State Of New YORK Appellate Division, Second Judicial Department (July 15, 2020) the trial court order granted Alan Tekel’s motion to allow arbitration to go forward to seek supplemental Underinsured Motorist benefits (hereinafter SUM)
Alan Tekel sustained injuries when, as a pedestrian, he was struck by a vehicle. After settling with the tortfeasor driver for the full limit of the driver’s insurance policy, Tekel submitted a claim for SUM benefits pursuant to a commercial automobile insurance policy issued by Progressive Casualty Insurance Company (hereinafter Progressive) to Air Repair, LLC (hereinafter the LLC), of which Tekel was the sole member.
Progressive denied coverage on the ground that Tekel did not meet the definition of an insured under the SUM endorsement, as he was not the named insured on the policy and, at the time of the accident, was not occupying a motor vehicle insured for SUM under the policy.
Following Terkel’s demand for arbitration, the underwriter of the policy sued seeking a permanent stay of arbitration. The Supreme Court (trial court) granted that branch of the petition which was to permanently stay arbitration only to change its position after reargument and denied that branch of the petition which was to permanently stay arbitration.
Where an automobile insurance policy contains a SUM provision and is issued to an individual, that individual and others in his or her family may be afforded SUM coverage under the policy when such person is injured in any vehicle, including a vehicle owned and insured by a third party. Where such a policy is issued to a corporation, however, the SUM provision does not follow any particular individual, but instead covers any person [injured] while occupying an automobile owned by the corporation or while being operated on behalf of the corporation. On the other hand, instances where the policy is issued to a partnership the decision is easier since partnerships being a combination of individuals who can suffer injuries and do have spouses, households and relatives.
Here, the policy was issued to a limited liability company, which is more akin to a partnership than a corporation.
Considering the entire policy the determination to grant Tekel’s motion that the definition of the term “insured” must be resolved in Tekel’s favor, the SUM endorsement defines the term “insured” to mean “you, as the named insured and, while residents of the same household, your spouse and the relatives of either you or your spouse.”
Although the declarations page identifies the LLC as the named insured, it also states that supplemental spousal liability insurance coverage will be included within your bodily injury liability coverage at no additional premium charge.
Accordingly, a permanent stay of arbitration was not warranted.
The New York court ruled in favor of Tekel because the insurer did not write a policy that was clear, unambiguous or even logical. When insuring an LLC, a form of corporation, it also provided coverage for the insured’s spouse. Since a corporation cannot have a spouse it allowed the court to conclude that the insurer considered the LLC to be an individual (and its sole member) to be an insured and not the fictional entity doing business as an LLC. If they wanted to limit the coverage Progressive needed to rewrite the policy to deal with its insured as a corporation rather than as an individual. Cut and paste clearly did not work for the Progressive.
© 2020 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and email@example.com.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Over the last 52 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.
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