Matter of Progressive Casualty Insurance Company v. Lai
Attorneys and Parties
Brief Summary
Automobile insurance—Supplementary Uninsured/Underinsured Motorist (SUM) coverage and the effect of settling with a tortfeasor without the insurer’s written consent; arbitrability of coverage issues.
Denied the petition to permanently stay arbitration of the insured’s SUM claim, effectively allowing arbitration to proceed.
The denial of the petition; the Appellate Division reversed and granted a permanent stay of arbitration.
The insured settled and released the tortfeasors without the insurer’s written consent in violation of the policy’s consent-to-settle condition, prejudicing the insurer’s subrogation rights. The policy’s arbitration clause is limited to liability and damages and does not render coverage issues arbitrable. The insured failed to show waiver/acquiescence by the insurer or that the release preserved subrogation rights.
Background
After a May 2021 two-car accident, Grace Lai sought benefits under a policy issued by Progressive Casualty Insurance Company that included a Supplementary Uninsured/Underinsured Motorist (SUM) endorsement. Exclusion 1 barred SUM coverage if the insured or representative settles any lawsuit against a potentially liable party without the insurer’s written consent. Condition 9 allowed execution of a release only after 30 days from the insurer’s receipt of written notice when settling for the tortfeasor’s policy limits, and otherwise prohibited settlement without written consent where the insurer’s rights would be impaired. Lai sued the tortfeasors and, in February 2022, notified Progressive she had settled for the $100,000 policy limits. On March 16, 2022, Progressive disclaimed coverage because Lai executed a release without its written consent. Lai then demanded SUM arbitration. Progressive commenced a proceeding under CPLR article 75 [New York Civil Practice Law and Rules governing arbitration-related applications, including stays of arbitration] to permanently stay arbitration. The Supreme Court, Westchester County, denied the petition; Progressive appealed.
Lower Court Decision
The Supreme Court, Westchester County (Damaris E. Torrent, J.), by order dated August 9, 2023, denied Progressive’s CPLR article 75 petition to permanently stay arbitration and, in effect, dismissed the proceeding.
Appellate Division Reversal
The Appellate Division reversed, with costs, and granted the petition to permanently stay arbitration. It held the policy’s arbitration clause is limited to two fact issues (fault of the uninsured/underinsured motorist and damages) and does not encompass threshold coverage disputes. Lai breached the consent-to-settle condition by releasing the tortfeasors without written consent, thereby prejudicing Progressive’s subrogation rights. Lai did not establish waiver, acquiescence, unreasonable delay by the insurer, or that the release expressly or by necessary implication preserved subrogation rights.
Legal Significance
Reaffirms that coverage disputes, including application of a consent-to-settle condition and related subrogation prejudice, are for judicial determination and not within a SUM arbitration clause limited to liability and damages. An insured who settles without written consent breaches a condition precedent to coverage and is barred from SUM benefits absent proof of insurer waiver/acquiescence or preservation of subrogation rights.
In SUM claims, settling with a tortfeasor without the insurer’s written consent generally forfeits coverage by prejudicing subrogation; limited arbitration clauses do not send such coverage disputes to arbitration.