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66 N.Y. St. B.J. 38 (1994)
New York State Insurance Department Revolutionizes Underinsurance Policies and Claims Practices

handle is hein.barjournals/nysbaj0066 and id is 160 raw text is: A1T I I111 NEW YORK STATE BAR JOURNAL New York State Insurance Department Revolutionizes Underinsurance Policies and Claims Practices By THOMAS R. MONKS Beginning October 1, 1993, sweeping reforms were mandated by the Depart- ment of Insurance which affect every auto insurance policy written in this state on and after that date. These revisions are embodied in New York Vehicle Regulation 35-D, which provides comprehensive manda- tory auto policy provisions for underinsured motorist coverage.1 Proposals for the reforms were first suggested by the Insurance Department in 1987. Eventually, the auto insurance industry openly opposed the revisions and in 1992 most of the major auto car- riers in New York State brought Article 78 Petitions in Supreme Court, New York County in an attempt to block enactment, contending that Regulation 35-D was arbitrary and capricious. The Petitions were the subject of the First Department Decision in National Asso- ciation of Independent Insurers & State Farm Mutual et. al. v. Curiale 190 A.D. 2d 597 (1st Dep't 1993), a ruling which upheld 35-D and dismissed the carriers' Petitions. In June 1993, the Court of Appeals denied Leave to Appeal the First Department's determination thereby lift- ing the stay over the enactment of the regulation.2 As of October 1, 1993, Regu- lation 35-D is in full force and effect and auto policies issued or renewed on or after that date must comply with its requirements concerning underinsured motorist coverage. With two exceptions which will be discussed later in this article, 35-D should be of great benefit to those injured in automobile accidents in this state. THE NEED FOR REFORM The importance of underinsured motorist coverage is difficult to over- state. Unlike auto liability coverage, which generally provides protection to other drivers for injuries caused by the fault of auto policyholders and their families, underinsured motorist coverage provides protection to the policyholders and their families, for injuries from the negligence of other drivers with insuffi- cient liability coverage. Underinsured motorist coverage (referred to in 35-D as Supplementary Uninsured Motorist Insurance: SUM Coverage) is particu- larly vital in New York State where $10,000 per person, and $20,000 per ac- cident, is all the liability coverage re- quired for registered vehicles. These liability limits have remained unchanged since the 1950's despite tremendous ef- forts made each year in the State Legis- lature by a variety of consumer and attorneys' organizations to raise these limits through new legislation. REQUIRED NOTICE TO THE PUBLIC Probably the most progressive as- pect of Regulation 35-D is the require- ment that insurers explain to policyholders, when every auto policy is issued or renewed, that SUM cover- age is available and why it is necessary. As an attorney involved in auto li- ability issues, I am too often confronted with the situation of a client severely injured through the fault of another mo- torist with minimal liability insurance. Under these circumstances, unless my clients had purchased SUM coverage from his own auto carrier, they will have no adequate source of recovery for their injuries and financial losses. $10,000 of liability coverage from the other driver is often all the client has in available compensation despite often permanent, disabling injuries. Unfortunately very few policyholders, and even few attor- neys, are aware of SUM coverage, and why it is vitally important. Until 35-D was implemented, carri- ers had no obligation to offer or explain this coverage to policyholders. At com- mon law there is no duty for agents and insurers to advise policyholders to ob- tain a particular coverage, nor is there a duty to provide coverage, unless a cus- tomer specifically requested it.3 According to information from the Insurance Department, only an estimated 20% of all auto policies currently carry SUM coverage, indicating that carriers and agents have done a poor job of pro- moting this protection. This failure to advise the public has been especially egregious considering that SUM endorse- ments have historically been inexpensive, when compared to the cost of the same limits of liability coverage. This irresponsibility on the part of agents and insurers will be corrected by 35-D, with the requirement that an expla- nation be given to policyholders of what SUM coverage is, and why they should consider purchasing the protection. It seems apparent that a new duty is now imposed on carriers, and presum- ably on agents as well, to provide this information to policyholders. The fail- ure to comply with this requirement in 35-D should create a legal cause of ac- tion where one did not previously exist. Cases which have provided civil immu- nity in these situations would appear to be overruled by the new regulation. UNIFORMITY IN POLICY LANGUAGE ON AVAILABILITY AND EXTENT OF COVERAGE Other provisions of 35-D will elimi- nate the confusion and uncertainty that has existed since SUM coverage was first offered, due to conflicting interpretation 11 NY.C.R.R. 60-2 81 N.Y. 2d 711 (1993). 3 Erwig vs. Cook Agency 173 A.D. 2d. 439 (2d Dep't 1991). 38 / March/April 1994

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