In re the Arbitration between Central Mutual Insurance

Rose, J. Appeal from an order of the Supreme Court (Hummel, J.), entered May 16, 2007 in Rensselaer County, which [500] granted petitioner’s application pursuant to CPLR 7503 to permanently stay arbitration between the parties. Aiter respondent was injured in a multicar accident, she negotiated a settlement with one of the tortfeasors for the full amount of that tortfeasor’s liability insurance policy. She then gave written notice of her intent to enter into this settlement to petitioner, which had issued her an insurance policy with supplementary uninsured/underinsured motorist (hereinafter SUM) coverage, but petitioner did not respond. Later, she agreed to settle with a second tortfeasor for less than that tortfeasor’s policy limits without first giving any notice to, or obtaining written consent from, petitioner. Respondent ultimately signed releases for both tortfeasors that made no provision for preserving petitioner’s subrogation rights. When she then made a claim for SUM benefits, petitioner disclaimed coverage based upon her failure to either obtain its consent to the settlements or take steps to preserve its subrogation rights. Respondent then demanded arbitration of her SUM claim, and petitioner commenced this CPLR article 75 proceeding to permanently stay arbitration. Supreme Court granted petitioner’s application. Respondent now appeals. Initially, we agree with respondent that the terms of the policy permitted her to settle with the first tortfeasor without preserving petitioner’s subrogation rights.1 Paragraph 10 of the policy describes when an insured may settle with a tortfeasor without jeopardizing SUM coverage and paragraph 13 indicates that the insured may not prejudice petitioner’s subrogation rights except as permitted in paragraph 10.2 The first sentence of paragraph 10 permits settlement and execution of a release with a tortfeasor for such party’s available policy limits after 30 days actual written notice to petitioner, unless petitioner agrees to advance the settlement amount within that time. Here, this provision permitted settlement with the first tortfeasor because respondent gave timely written notice and petitioner did not agree to advance the settlement amount. Neither paragraph 10 nor paragraph 13 mandated preservation of petitioner’s subrogation rights in those circumstances, and respondent’s execution of the release with the first tortfeasor did not violate the conditions of [501] petitioner’s policy (see e.g. Matter of Atlantic Mut. Ins. Co. v Cooper, 247 AD2d 209, 209 [1998]; cf. Matter of Transportation Ins. Co. [Pecoraro], 270 AD2d 851, 852 [2000]). We reach a different conclusion as to respondent’s argument that her settlement with the first tortfeasor for that party’s policy limits relieved her of the obligation to either obtain petitioner’s written consent to her settlement with the second tortfeasor or preserve petitioner’s subrogation rights in the release given to that tortfeasor. While paragraph 9 of the policy makes clear that respondent was obligated to fully exhaust the policy of only one of the tortfeasors involved in her accident (see S’Dao v National Grange Mut. Ins. Co., 87 NY2d 853, 854-855 [1995]), that same provision does not excuse a failure to comply with paragraph 10 upon settling with another tortfeasor. Unlike the settlement with the first tortfeasor, paragraph 10’s first sentence is not applicable to respondent’s settlement with the second tortfeasor because the latter was not for the full policy amount. As a result, only the last sentence of paragraph 10 applies here. That sentence provides: “An insured shall not otherwise settle with any negligent party, without our written consent, such that our [subrogation] rights would be impaired.” We do not view this sentence to be limited to where a party seeks in the first instance to settle for the full available policy limits of one tortfeasor. Rather, its function is to make clear that the method described in the first sentence of paragraph 10 is the one and only way to enter a settlement with “any negligent party” which impairs petitioner’s rights without its consent. There is no dispute that respondent failed to obtain petitioner’s consent or reserve petitioner’s subrogation rights against the second tortfeasor here. Our reading of paragraph 10 will not have the effect of discouraging settlements by, as respondent contends, holding her hostage to petitioner’s subrogation rights and forcing her to fully litigate any claims that she might have against any and all tortfeasors. That effect would occur only if the insured were required to exhaust the policies of all tortfeasors either before or after receiving SUM benefits. However, since the amendment of the applicable regulation (see 11 NYCRR 60-2.3 [f]) in 1993 and the Court of Appeals holding in S’Dao v National Grange Mut. Ins. Co. (supra) in 1995, it has become clear that insureds need only exhaust the policy or policies of a single tortfeasor (see Dachs and Dachs, Insurance Law, UM/SUM Coverage: Proposed Statutory, Regulatory Amendments, NYLJ, Sept. 13, 2005, at 3, col 1). Thus, there is no longer any requirement in the regulations or the policy language that the insured pursue [502] litigation or settle the claims that it might have against additional tortfeasors in order to qualify for or retain SUM benefits. While it is true that our reading of paragraph 10 precludes the insured from entering a second settlement that impairs subrogation rights without the insurer’s consent, it nonetheless encourages an initial settlement with one tortfeasor and expedites the receipt of SUM benefits while protecting the insurer’s subrogation rights to recoup the benefits paid from other tortfeasors. There can be little doubt that such was the intent of the applicable regulations (see id.). Inasmuch as respondent did not comply with the terms of her policy, she lost her claim to SUM benefits and we find no basis to disturb Supreme Court’s determination to permanently stay arbitration (see Matter of Prudential Prop. & Cas. Ins. Co. v Ambeau, 19 AD3d 999, 1000 [2005]; Matter of State Farm Mut. Auto. Ins. Co. v Lucano, 11 AD3d 548, 548 [2004], Iv denied 5 NY3d 717 [2005]; New York Cent. Mut. Fire Ins. Co. v Danaher, 290 AD2d 783, 784-785 [2002]). Mercure, J.P., Spain and Stein, JJ., concur. Footnotes [1] Contrary to petitioner’s contention, we consider respondent’s arguments to be preserved for our review as they were raised before Supreme Court by petitioner’s own arguments as well as respondent’s memorandum of law in opposition to petitioner’s motion (see e.g. Matter of Mount Sinai Med. Ctr. v Empire Blue Cross & Blue Shield, 282 AD2d 965, 966 [2001], Iv denied 96 NY2d 719 [2001]). [2] The paragraphs of petitioner’s policy mirror the terms of the SUM endorsement prescribed by 11 NYCRR 60-2.3 (f).