Norman H. Dachs and Jonathan A. Dachs
Norman H. Dachs and Jonathan A. Dachs ()

The recent decision of the U.S. Supreme Court in Burwell v. Hobby Lobby Stores, 573 US __ (June 30, 2014), in which the court ruminated and opined, inter alia, on the question of whether a corporation was a “person” within the meaning of the Religious Freedom Restoration Act of 1993 (RFRA), and whether corporations may have an existence separate and apart from the human beings who own, run, and are employed by them, brought to our mind longstanding issues and debates regarding the rights of individuals associated with a corporation to make claim under an insurance policy issued in the name of the corporation, as well as more recent questions about whether the same or similar rules apply when the named insured entity is not a corporation, but, rather a partnership, an LLC, or even a trade name (“d/b/a”).

‘Named Insured’ Corporations

In Buckner v. MVAIC, 66 NY2d 211 (1985), the New York Court of Appeals held that a policy of insurance issued to a family-owned real estate corporation did not provide uninsured motorist coverage for Robert Buckner, the college-aged son of the officers and sole shareholders of the corporation, who resided with them, and who was injured when he was struck by a hit-and-run driver while he was riding his bicycle (and not engaged in any business of the corporation).

Focusing on the “Who is insured” provision of the subject policy, which included “you or any family member,” and the policy’s definition of “family member” as “a person related to you by blood, marriage or adoption who is a resident of your household,” the court concluded that the coverage under that policy could not be extended to cover Buckner, because “it is obvious, even to a casual reader, that the insured was to be a corporation which could not possibly have personal injuries or family” [citations omitted]. See also Travelers Property Casualty Corp. v. Hershman, 287 AD2d 412 (1st Dept. 2001).

Subsequent cases applied this narrow approach to the definition of “insured” in policies issued in the name of a corporation to preclude the claim of officers, directors and shareholders of the named insured corporation themselves while not engaged in corporate business (see Continental Ins. Co. v. Velez, 134 AD2d 348 [2d Dept. 1987]; Royal Ins. Co. v. Bennett, 226 AD2d 1074 [4th Dept. 1996]; Travelers Indem. Co. v. Venito, 303 AD2d 592 [2d Dept. 2003]). And, then, a line of cases extended this narrow approach even further, applying it even to individuals, particularly firefighters and members of volunteer fire companies, who were injured in the course and scope of their employment with and for the named corporation/entity while not occupying the corporate insured vehicle (see Gallaher v. Republic Franklin Ins. Co., 70 AD3d 1359 [4th Dept. 2010]; lv. to appeal denied, 14 NY3d 711 [2010]; American Alternative Ins. Corp. v. Pelszynski, 85 AD3d 1157 [2d Dept. 2011], lv. to appeal denied, 18 NY3d 803 [2012]).

Notably, in both Gallaher, supra, and Pelszynski, supra, (in which the authors’ firm represented the claimant, Christopher Pelszynski on appeal), as well as in Roebuck v. State Farm Mut. Auto. Ins. Co., 80 AD3d 1126 (3d Dept. 2011), the courts rejected the arguments asserted by the claimants to the effect that the policy language defining an “insured” in the corporate policy context was, at the very least, ambiguous, i.e., the mere fact that the definitions of “Insured” in the SUM Endorsement refer to spouses and/or relatives of the named insured would suggest to the average person applying common speech that the “named insured” or “you” referenced therein could include an individual who may suffer a bodily injury and can have a spouse or relative, rather than only a corporation, which cannot. That conclusion would only be strengthened by the Endorsement’s reference to vehicles being operated by the “named insured” or “you,” since, of course, only an individual, not a corporate entity, could drive a motor vehicle.

The courts have consistently held, as stated in Roebuck, supra, to the contrary: “The policy language is not rendered ambiguous by the inclusion of words such as ‘you’ or ‘spouse’ and `relatives’ when a corporation is the named insured, because it is obvious to the average reader, construing the language according to common speech, that a corporation cannot have family members; those portions of the mandatory policy language are merely inapplicable to the corporate insured….” See also American Alternative Ins. Co. v. Pelszynski, supra (“‘You’ in the definition refers to the company, which cannot have a spouse or relative”).

Partial Statutory Remedy

As we reported in these pages on March 12, 2013,1 a legislative remedy has been afforded only to a narrow segment of category of individuals injured in the course and scope of their employment with and for the named insured corporation, with the enactment, effective April 16, 2013, of the new §3420(f)(5), which now requires that all policies under which a fire department, fire company, ambulance service or voluntary ambulance service is a “named insured” shall provide Supplementary Uninsured or Underinsured Motorist coverage to an individual employed by, or who is a member of such entities and was insured by an uninsured or underinsured motor vehicle while acting within the scope of his or her duties for the named insured entity” (except with respect to the use or operation by such individual of a motor vehicle not covered under the policy).

Unless and until further legislative action is forthcoming, all other claimants are relegated to the common-law rule precluding them from making claims under corporate policies unless they are occupants of the insured corporate vehicle at the time of the accident.

‘Hobby Lobby’

In Hobby Lobby, supra, the majority opinion noted that Congress, in prohibiting the government from substantially burdening “a person’s” exercise of religion, provided protection for closely held for-profit corporations “by employing a familiar legal fiction: It included corporations within RFRA’s definition of ‘persons’.” The majority observed that “it is important to keep in mind that the purpose of this fiction is to provide protection for human beings. A corporation is simply a form of organization used by human beings to achieve desired ends. An established body of law specifies the rights and obligations of the people (including shareholders, officers and employees) who are associated with a corporation in one way or another. When rights, whether constitutional or statutory, are extended to corporations, the purpose is to protect the rights of these people.” Further, the majority noted that “Corporations ‘separate and apart from’ the human beings who own, run, and are employed by them, cannot do anything at all.”

Similarly, as Justice Ruth Bader Ginsburg wrote in her dissenting opinion: “As Chief Justice Marshall observed nearly two centuries ago, a corporation is ‘an artificial being, invisible, intangible, and existing only in contemplation of law.’ Trustees of Dartmouth College v. Woodward, 4 Wheat. 518, 636 (1819). Corporations, Justice Stevens more recently rendered, ‘have no consciences, no beliefs, no feelings, no thoughts, no desires.’ Citizens United v. Federal Election Comm’n., 558 US 310, 466 (2010) (opinion concurring in part and dissenting in part).2

In view of Hobby Lobby’s explication of the relationship between corporations and the individuals that “own, run, and are employed by them,” we wonder whether the courts might now be tempted to revisit the cases that outright reject the claims of individuals under corporate policies. If, as Hobby Lobby states, corporations cannot act or function separate and apart from those individuals, can it not reasonably be argued that the corporation’s policy is intended to protect at least such individuals to whom the insured vehicle is assigned for their regular use, when they are acting in the course and scope of their employment and for the benefit of the corporation?

We can only ask this question at this time, not answer it, but we can foresee the potential for litigation on this issue in the future.

‘Named Insured’ Partnerships

Notably, in rendering its seminal decision regarding corporate insurance policies in Buckner, supra, the Court of Appeals took pains to distinguish between corporations and partnerships, the latter “being a combination of individuals, who can suffer injuries and do have spouses, households and relatives.” 66 NY2d at 214.

In Aetna Casualty & Surety Co. v. Mantovani, 240 AD2d 566 (2d Dept. 1997), the defendant (respondent) was injured in an auto accident and ultimately settled his claim with the tortfeasor for $100,000. He subsequently demanded arbitration of his claim for underinsured motorist benefits under three separate policies issued by Aetna, including a business automobile policy issued to his law partnership, with an underinsured motorist coverage limit of $300,000. The parties agreed that defendant was entitled to primary underinsured motorist coverage, and defendant, an individual, received an award under that policy, issued to the partnership. Accord, Hartford Acc. & Indem. Co. v. Huddleston, 574 SW2d 676 (Ct. of App. Ky. 1974) (“The uninsured motorist insurance contract plainly embraced the partners and their spouses and relatives living in the same household”).

It thus appears that an individual partner may make a claim for UM/SUM benefits under a policy issued in the name of the partnership.

Limited Liability Companies

In Morette v. Kemper, Unitrin Auto & Home Ins. Co., 35 Misc.3d 200 (Sup. Ct. Essex Co. 2012), the court held that the fact that a Limited Liability Company (LLC), of which the decedent killed in a hit and run accident was the sole member, was the named insured on a commercial auto policy did not preclude the decedent’s wife from recovering SUM benefits under the policy; the decedent, as the sole member of the LLC, was an “insured” entitled to coverage under the policy.

The Morette court observed that “Only by employing a construction which allows for a member of the limited liability company who is a ‘natural person’ (Limited Liability Law §102[w]) to be an ‘insured’ under the policy” could the policy provisions defining “you” as “the named insured and, while residents of the same household, your spouse and the relative of either you or your spouse,” affording “survivor rights” to “you or your spouse, if a resident of the same household,” and offering “Supplemental Spousal Liability Insurance” coverage, be given an effect; “otherwise they are illusory.”

Accordingly, the court held that Morette was an “insured” for whom SUM benefits were provided. “Reading the policy as a whole ‘to determine its purpose and effect and the apparent intent of the parties [citations omitted], the fact that the LLC was the named ‘insured’ does not preclude Morette, as the sole member of that company, from being an ‘insured’ entitled to coverage.”

The Morette court went on to distinguish that case from those cases, such as Buckner, supra and Gallaher, supra, in which the courts applied a different rule in the context of business auto policies issued to corporations to hold that such policies did not provide UM/UIM coverage to a family member of the sole shareholders of the corporation. As the court explained, “This rule does not apply to limited liability companies to the extent that its members are ‘natural persons.’ ‘The LLC was designed as a hybrid of the corporate and limited partnership forms, offering the tax benefits and operating flexibility of a limited partnership with the limited liability protection of a corporation. See Weber v. King, 110 F.Supp.2d 124, 131 (E.D.N.Y. 2000); see also N.Y. Practice §1:2 (explaining that the NYLLCL drew upon the N.Y. Revised Limited Partnership Act and N.Y. Business Corporation Law)’ (Bischoff v. Boar’s Head Provisions Co., 436 F.Supp.2d 626, 630 [S.D.N.Y. 2006]. Significantly, a limited liability company is ‘an unincorporated organization of one or more persons having limited liability for the contractual obligations and other liabilities of the business…’ (italics added) (Limited Liability Company Law §102[m]). A limited liability company is more akin to a partnership (see Partnership Law §2, §10) since both entities are ‘combination[s] of individuals, who can suffer injuries and do have spouses, households and relatives’ (Buckner v. Motor Vehicle Acc. Indemnification Corp., supra at 214. Notably, in Matter of Aetna Casualty & Surety Co. v. Mantovani, 240 AD2d 566, leave denied 90 NY2d 810, an arbitration award in favor of a partner for underinsured motorist benefits under a business automobile policy issued to the partnership was upheld.”

Thus, the Morette court granted summary judgment in favor of the plaintiff, declaring that his representatives were entitled to SUM benefits for his injuries and death (without their ever having made a motion for summary judgment).

More recently, the Morette distinction between corporations and LLC’s was picked up, adopted and applied by another court in another judicial department, as a matter of first impression therein. In Global Liberty Ins. Co. of New York v. Khan, Sup. Ct. Kings Co. Index No. 12870/13, decided Feb. 10, 2014, the court expressly rejected the contention that a policy issued in the name of an LLC should be treated the same as a policy issued to a corporation, for purposes of determining whether “household” coverage applied, and held that “unlike a corporation, a limited liability company is a partnership of individuals with spouses and children” and that “since partnerships are readily distinguishable from traditional corporations [citing Buckner v. MVAIC, 66 NY2d 211 (1985)], this Court shall follow Morette v. Kemper, 35 Misc.3d 200, 207, 941 NYS2d 440, 446 (N.Y. Sup. 2012) in this case of first impression in the Judicial District and Department.” Thus, in that case, the court held that the son of a member of the named insured LLC, who resided with her and was injured while riding his bicycle, was an insured under the commercial policies issued to the LLC.

We are not presently aware of any reported cases that hold to the contrary and apply the same rule to LLCs as to corporations.

Trade Names

Another interesting question in this field is whether coverage may be applicable to a resident relative of an individual who has registered and insured a vehicle in the name of a trade name or “d/b/a.” While the Buckner court may have unintentionally raised that issue (without fully addressing or answering it) by citing to a U.S. Court of Appeals for the Third Circuit case in which that issue was analyzed, the New York courts have been silent on this specific question over the years. In our next column, we will review case law from around the country dealing with resident relative coverage for UM/SUM claims under policies issued in the name of a “d/b/a,” including the case of O’Hanlon v. Hartford Accident & Indemnity Co., 639 F.2d 1019 (3d Cir. 1981), cited in Buckner, supra. From that discussion, we will seek to prognosticate on how the New York courts, when faced directly with that issue, will rule.


1. Dachs, N. and Dachs, J., “SUM Legislation—Good News/Bad News,” NYLJ, March 12, 2013, p. 3. col. 1.

2. See also, Reed v. Federal Ins. Co., 71 NY2d 581, 587 (1988) (“the corporate entity necessarily acts only through its agents”); Standard Fruit and Steamship Company v. Waterfront Commissioner of New York Harbor, 43 NY2d 11, 15-16 (1977) (“a corporation can only act through its officers and employees”).