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'Split limit' insurance clauses are ambiguous, New York high court rules.

Insurance companies may be scrambling to revise some of their policies in light of a recent New York Court of Appeals decision that found 8 stardard "split limit" clause in an automobile insurance policy ambiguous. (Mostow v. State Fann Insurance Cos., No. 142, 1996 WL 296220 (N.Y. June 5,1996).)

The clause, which is common to many insurance policies, limited coverage to "$100,000 each person, $300,000 each accident." In a unanimous decision, the court found this wording could be reasonably interpreted two ways. It either limited recovery to $100,000 for each person injured in an accident, with no more than $300,000 payable for all claims; or it limited recovery to $100,000 if one person was injured, but allowed recovery of up to $300,000 for each injured person if two or more people were injured, as long as the total paid for all claims did not exceed that amount.

The case arose from a 1992 automobile accident in which Alan and Sandell Mostow were injured. In an arbitration of their insurance claims, Alan was awarded $100,000, and Sandell, $190,000. The insurer, State Farm, sought to vacate or modify the award by reducing Sandell's recovery to $100,000, claiming the arbitrators had determined coverage in violation of the policy's split limit provision.

A trial court granted State Farm's request, but an appellate court reversed, finding that the insurance policy's provisions "are ambiguous, as they, on the one hand, appear to limit recovery for bodily injury to $100,000 per person, but, on the other hand, also appear to allow a greater per person recovery where, as here, two or more people are injured in the accident."

The court of appeals affirmed, noting that "the policy at issue here does not contain any language deeming the $300,000 per accident limit `subject to' the per person limit.

"The absence of such language, coupled with the policy provision stating that the $300,000 limit for "'each accident" is the total amount of coverage for all damage due to bodily injury to two or more persons in the same accident' renders the policy language susceptible of two reasonable interpretations."

The latest ruling is good news for claimants, according to Donald Jay Schwartz, who represented the plaintiffs. "I think the result of this decision is that insurance companies will have to pay more money [to people who claim benefits under similar split limit clauses]," Schwartz said from his office in Mineola, New York.

This analysis is not entirely prescient. Courts in at least four other states--Arizona, Kansas, New Hampshire, and Washington--have reached results similar to the Mostow decision in cases challenging the clarity of split limit clauses.

Insurers are unlikely to simply wait around for other states to follow suit, according to Mark Kris, an attorney in Albany, New York, who submitted an amicus brief on behalf of the New York State Insurance Association, American International Group, and CNA Insurance Companies. He said that insurers in New York, and probably those in other states, will issue endorsements to remove the ambiguity.

But even this may result in higher costs to insurers. Some experts have noted that "insofar as such endorsements could be considered reductions in coverage, the insurers would first have to get approval [from state regulatory authorities] for such a change and, perhaps, reduce premiums accordingly." (Norman H. Dachs & Jonathan A. Dachs, Policy Limits: Taking Nothing for Granted, N.Y. L.J., July 29, 1996, at A1.)

Kris disagreed. He said this conclusion is based on "tortured logic because it starts with a premise [that the premium is based on a policyholder's assumption that coverage exceeds the $100,000 per person limit] that is erroneous." Instead, Kris said, the premiums in Mostow were set by regulators based on the assumption that the $100,000 cap applied to all claims regardless of the number of people injured.

In fact, Kris argued, current premiums are inadequate because they don't reflect the increase in coverage that the Mostow decision bestows. "The premium is predicated on losses and a construction of the policy language that limited liability to $100,000.... You need to increase the premium if you don't eliminate ambiguity," Kris said.

Whatever the cost to insurers, Mostow shows that plaintiffs' lawyers must examine insurance policies with a more discerning eye, said Frank Verderame, a lawyer in Phoenix, Arizona. Because courts have been increasingly looking to the reasonable expectations of policyholders in interpreting insurance contracts, plaintiffs' lawyers should do this as well, Verderame said.
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Author:Hellwege, Jean
Date:Sep 1, 1996
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