Matter of State Farm Mut. Auto. Ins. Co. v Gutkin

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[*1] Matter of State Farm Mut. Auto. Ins. Co. v Gutkin 2005 NY Slip Op 51385(U) [9 Misc 3d 1103(A)] Decided on August 31, 2005 Supreme Court, Richmond County Minardo, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on August 31, 2005
Supreme Court, Richmond County

In the Matter of State Farm Mutual Automobile Insurance Company, Petitioner,

against

Regina Gutkin, Respondent.



8265/03

Philip G. Minardo, J.

Upon the foregoing papers, petitioner's motion to (1) modify, and confirm as modified, the arbitrator's award in a Supplemental Uninsured Motorist (SUM) arbitration proceeding; or in the alternative, (2) vacate the award and permanently stay arbitration is granted to the extent indicated.

The test applicable for review of the arbitrator's award where an alleged error of law is at issue is whether any reasonable hypothesis can be found to support the questioned interpretation by the arbitrator. In this regard, the court will not set an award aside for errors of law or fact unless the award is so irrational as to require vacatur (Palmer v. Allstate Ins Co, 101 AD2d 127, 131 [2nd Dept 1984]).

This claim arises from a two-car collision that allegedly resulted in respondent's sustaining

a serious injury. When respondent demanded arbitration, petitioner initially brought on, and later withdrew pursuant to stipulation, a motion to stay the arbitration.

It is undisputed that subsequent to the withdrawal of petitioner's application to stay arbitration, and prior to commencement of the subject arbitration hearing, respondent settled a third-party claim against the other vehicle involved in the underlying accident for $25,000. It is further undisputed that respondent settled the claim without the notice or consent of petitioner. [*2]

Petitioner's counsel claims, without contradiction, that he first learned of the settlement during respondent's testimony at the arbitration, and that, over his objection, the arbitrator precluded any inquiry into the amount and underlying details of the settlement (see Affidavit of Guy Moschetti, Esq., dated April 7, 2005, ¶¶ 4-5). The arbitrator's award made no mention of the third-party settlement, which exceeded the amount he awarded respondent on her SUM claim (see Petitioner's Exhibit F).

Therefore, petitioner argues, the award must be vacated or modified because the arbitrator denied petitioner a fair hearing and acted in an arbitrary and capricious manner when he refused to allow petitioner to present evidence of the settlement and failed to consider that any damages recoverable by respondent under her policy with petitioner should be completely offset by the settlement. In opposition, respondent argues that petitioner waived any right to an offset by not moving to stay the arbitration proceeding.

As a general rule, the extent of an insurer's liability and the availability of offsets in a Supplemental Uninsured Motorist arbitration proceeding are matters to be determined by the arbitrator (Matter of Liberty Mut Ins Co v. Tetteh, 277 AD2d 239 [2nd Dept 2000]), whose decision will not be disturbed so long as it is rational and not arbitrary or capricious (Matter of

Selimis v. General Acc Ins Co, 264 AD2d 738 [2nd Dept 1999]).

Here, it is undisputed that the issue of the insured's recovery of damages from an insured third-party was broached for the first time at the arbitration hearing, and that the arbitrator precluded inquiry into the issue. In his award, the arbitrator found that the negligence of the uninsured driver was a substantial factor in causing the accident and that there was no evidence that the insured was negligent. He further determined that the insured had suffered a "serious injury," and awarded her the sum of $17,000 from the insurer in full disposition of all Supplemental Uninsured Motorist claims.

It is clear that an error of law was made by the arbitrator when he failed to allow evidence of, or to take into consideration in making his award, the amount recovered by respondent in settlement with the third-party insurance carrier and its insured. The issues of the extent of the insurer's liability and the availability of offsets are matters expressly within the language of the arbitration clause of the relevant SUM endorsements, and thus should have been determined at arbitration (see e.g. Matter of Liberty Mut Ins Co v. Tetteh, 277 AD2d at 240). The failure of the arbitrator to allow evidence of the prior settlement with the allegedly uninsured/underinsured motorist and to consider the amount of that settlement in determining the amount of the award to which the insured was entitled were fundamental errors that rendered the award irrational as a matter of law (CPLR 7511[d]).

While the usual evidentiary rules applicable in a court of law are waived in arbitration, the arbitrator generally may not exclude pertinent evidence (see e.g. Gervant v. New England Fire Ins Co, 306 NY 393, 400 [1954]). Therefore, since the amount that should have been offset and applied in this case exceeded the amount of damages found by the arbitrator, there is no rational

basis for the award, and it must be set aside (cf Matter of State Farm Mut Auto Ins Co v. Bigler, 18 AD3d 878 [2nd Dept 2005]), and the matter referred back to the arbitrator to render a [*3]complete, final and definite award on all of the issues (CPLR 7511[d]; Matter of Biscardi v. Maryland Cas Co, 40 AD2d 610 [2nd Dept 1972]).

Accordingly, it is

ORDERED that petitioner's motion is granted to the extent that the arbitrator's award is vacated; and it is further

ORDERED this matter is remanded to the American Arbitration Association for further proceedings, including a rehearing, if necessary, consistent with this Decision and Order.

ENTER

Dated: August 31, 2005_____________________________

J.S.C.

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