2.3 SUM / UM / UIM Endorsements & Regulation 64 Physical Damage Settlement Rules

2.3 SUM / UM / UIM Endorsements & Regulation 64 Physical Damage Settlement Rules

Automobile claims adjusters in New York regularly resolve claims involving uninsured motorists, underinsured tortfeasors, and vehicle collision damage. These exposures are regulated under New York Insurance Law § 3420(f), Regulation 35-D (11 NYCRR 60-2), and Regulation 64 (11 NYCRR 216.7).

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Mandatory Uninsured Motorists (UM) Coverage (§ 3420(f)(1))

Under New York Insurance Law § 3420(f)(1), every motor vehicle liability policy delivered in New York State must provide mandatory Uninsured Motorists (UM) coverage.

Key Statutory Features of Mandatory UM

• Standard Limits: Mandatory UM limits match minimum bodily injury liability requirements: $25,000 per person / $50,000 per accident for bodily injury, and $50,000 per person / $100,000 per accident for wrongful death.
• Bodily Injury Exclusivity: Statutory UM covers only bodily injury and death. It never covers physical damage to the insured's vehicle.
• New York State Limitation: Mandatory basic UM coverage applies exclusively to accidents occurring within New York State. Out-of-state accidents are not covered under basic statutory UM.

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Supplementary Uninsured/Underinsured Motorists (SUM) Endorsement (Regulation 35-D)

To provide policyholders with expanded protection beyond the 25/50 in-state minimum, New York promulgated Regulation 35-D (11 NYCRR Subpart 60-2) establishing the Supplementary Uninsured/Underinsured Motorists (SUM) endorsement.

Availability and Geographic Scope

Insurers must offer SUM coverage in writing to policyholders. Policyholders may purchase SUM limits up to their policy's bodily injury liability limits (e.g., $100,000/$300,000 or $250,000/$500,000). Unlike basic UM, SUM coverage applies to accidents occurring throughout the United States, its territories and possessions, and Canada.

The Underinsurance Trigger and Exhaustion Rule

• The Trigger: Under Regulation 35-D, SUM underinsurance is triggered only when the at-fault driver's bodily injury liability limits are lower than the injured insured's SUM limits. If the tortfeasor's liability limits equal or exceed the claimant's SUM limits, SUM coverage cannot be triggered.
• The Exhaustion Rule: The insured cannot collect SUM benefits until the liability insurance limits of all applicable tortfeasors have been fully exhausted by payment of judgments or settlements with the SUM insurer's written consent.

The Non-Stacking Offset Mechanism

[!IMPORTANT] New York does not permit stacking SUM limits on top of the tortfeasor's liability limits. Instead, New York applies a dollar-for-dollar offset rule: $\text{Maximum SUM Payout} = \text{Insured's SUM Limit} - \text{Amount Paid by Tortfeasor's Liability Carrier}$

Practical Settlement Scenario

Scenario: An insured carries $100,000 SUM limits. An at-fault driver carrying minimum statutory limits of $25,000 causes severe injuries resulting in $130,000 of proven damages.

1. Trigger: The tortfeasor's $25,000 limit is lower than the insured's $100,000 SUM limit.
2. Exhaustion: The tortfeasor's insurer tenders its full policy limit of $25,000.
3. Offset: The insured's $100,000 SUM limit is offset dollar-for-dollar by the $25,000 liability recovery ($100,000 − $25,000 = $75,000).
4. Total Payout: The insured collects $25,000 from the tortfeasor plus $75,000 from the SUM carrier, recovering $100,000 total.

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Motor Vehicle Accident Indemnification Corporation (MVAIC - Article 52)

Created under New York Insurance Law Article 52, the Motor Vehicle Accident Indemnification Corporation (MVAIC) is a non-profit safety net of last resort. It compensates innocent victims injured by uninsured motorists or unidentified hit-and-run drivers when no other auto insurance policy exists.

"Qualified Persons" vs. "Insured Persons"

• Insured Persons: Individuals who own an insured motor vehicle or reside with an insured relative must claim under their household policy's UM endorsement and are ineligible for MVAIC.
• Qualified Persons: New York residents who do not own a vehicle and do not live with an insured relative (e.g., a carless pedestrian struck by a hit-and-run driver). Only qualified persons may collect MVAIC benefits.

Statutory Reporting Deadlines

• Hit-and-Run Accidents: Must be reported to police within 24 hours (or as soon as reasonably possible). Formal notice of claim must be filed with MVAIC within 90 calendar days of the accident.
• Identified Uninsured Motorist Claims: Notice of claim must be filed with MVAIC within 180 calendar days of the accident.
• Coverage Limits: MVAIC provides basic No-Fault PIP ($50,000) and bodily injury liability protection up to statutory minimums (25/50 with 50/100 wrongful death).

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Regulation 64 (11 NYCRR 216.7) Auto Physical Damage Settlement Standards

Regulation 64 sets binding operational standards for adjusting first-party auto physical damage claims (Comprehensive and Collision) and third-party property damage claims.

Mandatory Adjuster Inspection Timelines

• 6-Business-Day Rule: The insurer or adjuster must inspect the damaged vehicle within six (6) business days of receiving notice of claim.
• Good-Faith Offer: the insurer must also make a good-faith offer of settlement within that six-business-day window.
• Re-Inspection Windows: where supplemental or open items are identified, the insurer has two business days to re-inspect, extended to four business days where repairs have been sublet.
• Unreasonable Delay (216.7(d)): if a physical damage claim is unresolved after 30 days the insurer must give the insured a written explanation of the delay, and must repeat that explanation every 30 days until the claim is resolved.

Detailed Estimates and Anti-Steering Protection

The adjuster must prepare a detailed, itemized written estimate specifying parts, labor operations, hourly rates, and paint materials. Under New York Insurance Law § 2610 (Anti-Steering), an insurer cannot require that repairs be completed at a specific repair shop; adjusters must provide a written notice of rights informing the insured of their right to choose any licensed repairer.

Non-OEM (Aftermarket) Crash Parts Rules

When specifying non-original equipment manufacturer (non-OEM) aftermarket crash parts (hoods, fenders, bumpers, door skins):

1. Identification: Non-OEM parts must be clearly identified on the estimate with an asterisk or explicit label.
2. Written Disclosure: The estimate must contain a prominent written disclosure statement advising the consumer that non-OEM parts are specified.
3. Equal Quality Warranty: Non-OEM parts must carry a manufacturer warranty certifying they are at least equal in quality, fit, finish, and corrosion resistance to OEM parts.

Total Loss Valuation and Mandatory Sales Tax Reimbursement

Under 11 NYCRR 216.7(c)(1) the insurer must offer an amount determined by one of the following methods (developed in full in Section 10.4):

1. The average of two approved valuation manuals (the Redbook and the N.A.D.A. Official Used Car Guide), less up to $100 for dealer preparation charges;
2. A dealer quotation for a substantially similar vehicle from a dealer within 25 miles of the insured, that vehicle to remain available for three calendar days;
3. An approved computerized database producing statistically valid fair market values in the local market area;
4. For a vehicle purchased within 180 days of the loss (private sales and gifts excluded), the purchase price plus improvements; or
5. Where none of the above applies, the best available method, fully documented.

Any deduction for prior unrepaired damage or wear must be itemized, documented with photographs, and measurable.

[!NOTE] 11 NYCRR 216.6(b) defines actual cash value to include “all monies paid or payable as sales taxes on the item repaired or replaced.” That is the regulatory hook requiring New York State and local sales tax to be built into a total loss settlement; insurers may not strip it out of the cash payment.

Referral of the Insured to the At-Fault Party (216.7(h))

An insurer may not refer, or attempt to refer, its own insured to the “at fault” party or that party's insurer for settlement of a first-party physical damage claim the insurer is itself obligated to pay. The insurer pays its insured and then pursues the tortfeasor through subrogation.