Hanover Ins. Co. v. Losquadro

• Court: New York Supreme Court
• Writing for the Court: EDWARD H. LEHNER
• Citation: 157 Misc.2d 1014,600 N.Y.S.2d 419
• Decision Date: 08 June 1993
• Parties: HANOVER INSURANCE COMPANY, Plaintiff, v. Joseph LOSQUADRO and Bessie Losquadro, Defendants.

Page 419

600 N.Y.S.2d 419 157 Misc.2d 1014 HANOVER INSURANCE COMPANY, Plaintiff,
v.
Joseph LOSQUADRO and Bessie Losquadro, Defendants. Supreme Court, New York County,
IAS Part 12. June 8, 1993.

Page 420

Vincent P. Crisci, New York, for plaintiff.

John J. Guadagno, Mineola, for defendants.

EDWARD H. LEHNER, Justice:

The issue presented on this motion by defendants to dismiss [157 Misc.2d 1015] the complaint and confirm an arbitration award is whether the automobile insurance policy provision permitting a trial de novo when an arbitration panel awards a claim for underinsurance in excess of $10,000 is enforceable.

Facts

Defendants were injured in an automobile accident. In settlement of their claims the insurer of the offending vehicle paid $10,000 to each of them, which sums constituted the full limits of its policy. Since the defendants carried supplemental uninsured motorists coverage (commonly referred to as "underinsurance"), they sought recovery from their insurer, the plaintiff herein.

The subject policy contained the following provision with respect to this coverage:

"If we and a covered person do not agree:

1. Whether that person is legally entitled to recover damages under this endorsement; or

2. As to the amount of damages;

either party may make a written demand for arbitration. In this event, each party will select an arbitrator. The two arbitrators will select a third....

. . . . .

A decision agreed to by two of the arbitrators will be binding as to:

1. Whether the covered person is legally entitled to recover damages; and

2. The amount of damages. This applies only if the amount does not exceed the minimum limit for bodily injury liability specified by the financial responsibility law of the state in which your covered auto is principally garaged. If the amount exceeds that limit, either party may demand the right to a trial. This demand must be made within 60 days of the arbitrators' decision. If this demand is not made, the amount of damages agreed to by the arbitrators will be binding."

In accordance with these provisions an arbitration proceeding ensued which culminated in an unanimous award by the three person panel of $210,000 to defendant Joseph Losquadro and $25,000 to defendant Bessie Losquadro, from both of which sums $10,000 was deducted representing the amounts received from the insurer of the offending vehicle.

Thereafter, rather than pay the amounts awarded, plaintiff instituted this action, asserting that since the awards exceeded[157 Misc.2d 1016] the "minimum limit for bodily injury liability" specified in this state ($10,000--Vehicle and Traffic Law § 311), it was entitled to a trial de novo "on all issues".

Defendants have now moved to dismiss the complaint pursuant to CPLR 3211(a), and to confirm the award pursuant to

Page 421

CPLR 7510 on the ground that the provision for a trial de novo is unenforceable as against public policy in that it unfairly favors insurers because the insured is bound by an award that does not exceed $10,000, whereas an award in excess of that amount is non-binding.

Discussion

Plaintiff asserts that the enforceability of the provision has already been upheld by our Court of Appeals in the case of Reichel v. Government Employees Insurance Company, 66 N.Y.2d 1000, 499 N.Y.S.2d 385, 489 N.E.2d 1287 (1985). There, although a trial de novo was directed based on provisions similar to that quoted above, the validity thereof had not been challenged and thus was not passed upon by the court, as is clearly indicated in the Appellate Division opinion (107 A.D.2d 463, 465, 487 N.Y.S.2d 99). Research has not located any New York decision on this specific issue, although the question was raised in Liberty Mutual Insurance Company v. Lodha, 131 Misc.2d 670, 500 N.Y.S.2d 989 (Sup.Ct., Queens Co., 1986), but not decided because the court found a waiver in light of the fact that the arbitration proceeded with one arbitrator under the rules of the American Arbitration Association, rather than in accordance with the policy provisions.

Although not in unanimity, courts in other states that have examined the trial de novo provision, which appears to be fairly standard throughout the country, have in recent years generally declined enforcement on public policy grounds [see, Schmidt v. Midwest Family Mutual Insurance Company, 426 N.W.2d 870 (Minn.1988); Mendes v. Automobile Insurance Company of Hartford, 212 Conn. 652, 563 A.2d 695 (1989); Pepin v. American Universal Insurance Co., 540 A.2d 21 (R.I.1988); Worldwide Insurance Group v. Klopp, 603 A.2d 788 (Del.1992); Schaefer v. Allstate Insurance Company, 63 Ohio St.3d 708, 590 N.E.2d 1242 (1992); O'Neill v. Berkshire Mutual Insurance Company, 786 F.Supp. 397 (D.Vt.1992); Field v. Liberty Mutual Insurance Company, 769 F.Supp. 1135 (D.Hawaii, 1991) (the latter two federal cases interpreted Vermont and Hawaii law, respectively, even though the highest courts of those states had yet to rule on the issue) ].

Holdings to the contrary may be found in Cohen v. Allstate [157 Misc.2d 1017] Insurance Company, 231 N.J.Super. 97, 555 A.2d 21 (1989) and Roe v. Amica Mutual Insurance Co., 533 So.2d 279 (Fla.1988), where the provision was upheld, essentially on the principle that parties should be free to contract as they see fit, with the courts finding no public policy barring enforcement.

The...