In re the Rehabilitation of Empire Mutual Insurance

OPINION OF THE COURT

Sullivan, J.

Claimant Armando Barone appeals from an order confirming the referee’s report and denying and dismissing his first-party benefits claim against Empire Mutual Insurance Company, which is in rehabilitation pursuant to article 16 of the Insurance Law.

The facts are not in dispute. Mr. Barone, an independent contractor making a masonry repair, was injured on April 10,1978 on the premises of Elan’s Service Station when he was struck by a vehicle owned by Nick Hambas. The Hambas vehicle, which had been delivered to the station the night before for repairs, was being operated at the time of the accident by an Elan’s employee who “was moving the car * * * to begin doing work.”

Mr. Hambas’ -automobile was covered by an Empire Mutual automobile liability policy which complied with the requirements of article 6 of the Vehicle and Traffic Law and included the Mandatory Personal Injury Protection Endorsement [no-fatilt insurance] required by subdivision 1 of section 672 of the Insurance Law. Mr. Barone made a claim for first-party benefits under the Empire policy. The Superintendent of Insurance, as rehabilitator, invoking a provision of the no-fault endorsement excluding loss arising out of “conduct within the course of a business of repairing, servicing, or otherwise maintaining motor vehicles”, disallowed the claim. We agree that the claim should be excluded and affirm Special Term’s determination.

The pertinent provisions of Empire’s no-fault endorsement are as follows:

“Mandatory Personal Injury Protection “The Company will pay first party benefits to reimburse for basic economic loss sustained by an eligible injured person on account of personal injuries caused by an accident arising out of the use or operation of a motor vehicle.” “Other Definitions * * *

“(h) ‘use or operation’ of a motor vehicle includes the loading or unloading of such vehicle but does not include conduct within the course of a business of repairing, servicing, or otherwise maintaining motor vehicles, unless the conduct occurs off the business premises.”

This definition of “use or operation” follows verbatim the definition of “use or operation” contained in the Insurance Department’s duly promulgated Mandatory Personal Injury Protection Endorsement, which has been in effect since the inception of no-fault insurance in this State on February 1, 1974. The mandatory endorsement for accidents occurring on or after December 1,1977 is found in a regulation published in 11 NYCRR 65.12 (a).1 Except for an. Insurance Department examiner’s interpretation of the “use or operation” exclusion, which interpretation is at odds with the position taken by the Superintendent of Insurance, as rehabilitator, in this proceeding, we do not have the benefit of any statement of regulatory purpose in the promulgation of the exclusion.

We find the endorsement’s definition of “use or operation” to be clear and unambiguous on its fece in its exclusion of loss arising out of on-premises accidents which occur in the course of the business of repairing, servicing or otherwise maintaining motor vehicles. Unlike the dissent, we do not read the clause “but does not include conduct within the course of a business of repairing, servicing, or otherwise maintaining motor vehicles” as a qualification of “loading or unloading”, but rather, as a clear limitation of “use or operation.” Where the words of a statute are free from ambiguity and their meaning unequivocal, courts are not at liberty to construe. (People ex rel. New York Cent. & Hudson Riv. R. R. Co. v Woodbury, 208 NY 421; People ex rel. Lehigh & N. Y. R. R. Co. v Sohmer, 217 NY 443, mot for rearg den 218 NY 632; Mount v Mitchell, 31 NY 356, mot for rearg den 32 NY 702; McKinney’s Cons Laws of NY, Book 1, Statutes, § 76.)

The dissent urges that the clause was designed to limit “loading and unloading” so as to exclude activities usually associated with the repair and maintenance of vehicles and which might otherwise be viewed as “loading or unloading.” If that were the superintendent’s intent, however, the limitation ougl\t to apply off-premises as well as on-premises. On the other hand, since the operative word in both the on-premises exclusion and off-premises inclusion is “conduct”, we find it clear that the exclusion turns, not on the nature of the repairman’s activity, but rather, on the place where that activity occurs. Viewed in that light and giving the word “conduct” its plain meaning, the reason for the distinction between on-premises and off-premises incidents becomes apparent — off-premises conduct, including the operation of a motor vehicle by a service station employee to whom the vehicle has been entrusted for repair, is a peril normally associated with the use or operation of an automobile, and thus in the event of loss, reparation ought to be paid, irrespective of fault. The same conduct occurring on-premises constitutes a hazard which is peculiarly within the operations of a repair or service station business2 and should be excluded from the scope of motor vehicle “use or operation” under no-fault insurance. The loss from the latter conduct should come out of the pocket of the repairman who is charging for the service, not out of the insured’s no-fault premiums. While a primary purpose of the no-fault legislation was to provide for the swift payment of benefits to injured parties, irrespective of fault, it was also designed to provide “substantial premium savings to all New York motorists.” (Governor’s Memorandupa, NY Legis Ann, 1973, p 298.)

The exclusion has an analogue in the standard automobile liability policy’s omnibus clause, which extends coverage to, inter alia, any other person using the motor vehicle with the insured’s permission, but has historically excluded the service station, public garage, sales agency, repair shop, or public parking place, even though such an establishment has rightful custody of the vehicle during its operation, maintenance, or use by an employee thereof. (6C Appleman, Insurance Law and Practice [Buckley ed], § 4372.) In New York, the regulatory authorization for the garage or service station exclusion is found in 11 NYCRR 60.1 (c) (3) (i), which provides that “the policy need not apply * * * to any person or organization, or to any agent or employee thereof, employed or otherwise engaged in operating an automobile sales agency, repair shop, service station, storage garage or public parking place, with respect to any accident arising out of the maintenance or use óf a motor vehicle in connection therewith”.

Although the automobile policy does not insure the liability of the service station owner or his employee, it does, of course, by statute in New York, cover the vicarious liability of the insured for their negligence, whether on or off the premises, and irrespective of whether that liability is based on either permissive use (Vehicle and Traffic Law, § 388)3 or, through the application of traditional tort concepts, i.e., respondeat superior. The exclusion is not, however, without practical efficacy. Since neither the service station owner nor his employee is an insured under the policy, and is indeed excluded from coverage, an insurer defending a negligence action against its insured premised upon vicarious liability for an on-premises accident involving personal injuries arising out of the business of operating an automobile service station could cross-claim against or implead, as the case may be, the service station owner and his employee for indemnification or contribution, thereby placing all or part of the ultimate loss where it properly belongs. The exclusion thus serves to minimize the insurer’s exposure to the high-risk peril of service station operations. Without the “use or operation” exclusion for on-premises activities, the no-fault insurer, in cases where the service station owner or his employee is not at fault, would have no right of recourse.4

Moreover, and more significantly, evidence that the exclusion dealing with on-premises “conduct within the course of a business of repairing [or] servicing * * * motor vehicles” was intended by the superintendent to qualify “use or operation” and not merely, as the dissent contends, “loading or unloading”, so as to exclude nonoperational activities such as repairs, may be gleaned by reference to the origins of the phrase “use or operation”. Section 52 of the Vehicle and Traffic Law, now section 253, which provides for service of process on a nonresident in an action arising out of the use or operation of a motor vehicle in this State, was amended in 1958 to insert “use or operation”, where formerly only “operation” had been used. (See L 1958, ch 568.) This expansion was in response to a Law Revision Commission study regarding questions which had arisen “as to whether various acts done with or to the vehicle when it is not actually in motion, such as unloading or making repairs, will provide a basis for an action within the statute [since in instances] * * * where the injuries were sustained while the vehicle was being unloaded, the courts have held that the action does not grow out of an accident involving the operation of the vehicle.” (1958 Report of NY Law Revision Comm, p 648, citing cases; see Aranzullo v Collins Packing Co., 18 AD2d 1068, affd 14 NY2d 578; also New York Adopts No-Fault: A Summary and Analysis, 37 Albany L Rev 662, 675.) The insertion of the word “use” was intended to assure that nonoperational activities,, such as repairs or the loading of a vehicle, were to be included within the scope of the statute. Thus, the word “operation” has historically had a meaning separate and distinct from “use”. Inasmuch as the mandatory endorsement’s limitation of “use or operation” by the clause “but does not include conduct within the course of a business of repairing [or] servicing motor vehicles” is not confined to “use”, we can only conclude that the limitation was intended not just for activities usually associated with the repair and maintenance of vehicles and of a kind that might be viewed as “loading or unloading”, but for operational conduct as well.5

We find it difficult to accept the premise that the superintendent, had he intended to exclude only on-premises nonoperational activities such as repairs, could not have written a regulation which would have clearly accomplished that objective. In this connection, we note that the Superintendent of Insurance has, in another context, fashioned an articulate and cogent regulation authorizing a limitation of “loading or unloading” which could have been adapted for use here had that been his intent: “As respects any person or organization other than the named insured or such spouse” an automobile liability insurance policy “need not apply * * * to any person or organization, or to any agent or employee thereof, with respect to bodily injury, sickness, disease or death, or injury to or destruction of property arising out of the loading or unloading of the motor vehicle.” (11 NYCRR 60.1 [c] [3] [iii].)

The major thrust of the dissent’s argument is that the literal interpretation of the “use or operation” definition excluding coverage for “conduct within the course of a business of repairing, servicing, or otherwise maintaining motor vehicles” is at odds with the spirit and intent of New York’s no-fault statute, which requires that automobile liability policies issued in compliance with the requirements of article 6 or 8 of the Vehicle and Traffic Law provide for the payment to those eligible of “first party benefits * * * for loss arising out of the use or operation in this state of [a] motor vehicle” (Insurance Law, § 672, subd 1, par [a]). That the Insurance Department’s definition of “use or operation” excludes the claim of a “covered person”6 for a certain type of accident makes the regulation no less a valid exercise of administrative power in the absence of a showing that the promulgation of the regulation is ultra vires. (See Matter of Picone v Commissioner of Licenses of City of N. Y., 241 NY 157.) The legitimacy of the regulation turns not on a perception of whether it serves the purpose of the statute, but whether the Legislature gave the superintendent authority to exclude certain types of service station accidents from first-party coverage. In this connection we note that the Third Department has enforced the “use or operation” exclusion for injuries sustained during the course of an on-premises motor vehicle repair. (Sando v Firemen’s Ins. Co. of Newark, N. J., 79 AD2d 774.)

Thus, the question essential to the disposition of this appeal is whether the superintendent is empowered to exclude on-premises accidents arising out of the use or operation of a motor vehicle in the course of a motor vehicle repair business from first-party benefits coverage. It should be noted that the exclusion is not geographical; the service station premises, itself, is not an excluded area. Moreover, the exclusion does not except from coverage any special class of injured party. In this case, had the Hambas vehicle been driven at the time of the accident by anyone other than an employee of Elan’s or someone similarly engaged, Barone would have been entitled to first-party benefits, notwithstanding that the accident occurred on the service station premises or that he was performing a service for the repair station owner. Thus, the exclusion is reasonable and truly a limitation of “use or operation”. In interpreting the no-fault statute the superintendent has been given broad power to prescribe regulations “not inconsistent with [its] provisions”. (Insurance Law, § 21.) In promulgating the “use or operation” exclusion at issue, he has neither acted in derogation of the statute nor arrogated powers to himself.

The thesis that the exclusion can be rationalized by finding that its purpose was to exclude only on-premises activities involving the repair of a vehicle when it is not in operation is inconsistent with the argument that the superintendent lacks statutory authority to exclude a service station accident occurring when a car is in operation, because the exclusion authorization for either limitation cannot be found in the statute. If the superintendent does not have the power to exclude from coverage “operation” of a vehicle while it is in a service station, he also does not have the power to exclude “use” (which includes repair7 — cf. Blake v Salmonson, 188 Misc 97) of a vehicle while it is on the same premises.

Nor do we believe that Servido v Superintendent of Ins. (53 NY2d 1041, revg on dissenting opn 77 AD2d 70, 76-86) compels a departure from the literal interpretation of the “use or operation” definition excluding on-premises accidents arising out of the use or operation of a motor vehicle within the course of the business of repairing or servicing motor vehicles. In Servido the superintendent, by regulation, had authorized a provision excluding from coverage a class, viz., members of an insured’s household otherwise covered for loss arising out of the use or operation of an uninsured motor vehicle, because the household member owned the uninsured vehicle. The regulation was held to be invalid because the Legislature had not authorized the exclusion, since it had specifically enumerated, without mentioning this class, those classes which could be excluded. As already noted, no class has been excluded here.

Finally, the opinion of the Senior Examiner of the Insurance Department, as expressed in similar cases, that the clause “conduct within the course of a business” refers to the status of the injured party, does not withstand analysis. In the examiner’s view the “use or operation” definition was intended to exclude from first-party benefits service station employees, not innocent bystanders, such as pedestrians and customers, who are injured through the use or operation of a motor vehicle while that vehicle is being serviced. “[T]he insurance coverage in this statute is designed to follow the vehicle rather than the injured party”. (Ohio Cas. Ins. Co. v Continental Ins. Co., 101 Misc 2d 452, 455.) Furthermore, it has been held that the availability of workers’ compensation benefits is not a bar to a claim for first-party benefits. (Ryder Truck Lines v Maiorano, 44 NY2d 364; see, also, Carriers Ins. Co. v Burakowski, 93 Misc 2d 100, 102.) Moreover, this interpretation makes little practical sense since, by statute, first-party benefits entitlement is discounted by and to the extent of recovered or recoverable workers’ compensation or disability benefits. (See Insurance Law, § 671, subd 2, par [b].) Nor, if the exclusion were intended to exclude a class, i.e., service station employees, does the examiner’s interpretation justify the distinction between on-premises and off-premises accidents.

Accordingly, the order of the Supreme Court, New York County (Asch, J.), entered March 28, 1980, should be affirmed, without costs or disbursements.

1 This definition of “use or operation”, first appeared in the Mandatory Personal Injury Protection Endorsement promulgated by regulation, duly adopted October 3,1973 and published in 11 NYCRR 65.2 (a) (“Other Definitions”, subd [h]), which endorsement and regulation now apply only to personal injuries sustained before December I; 1977. *203The mandatory endorsement promulgated in 11 NYCRR 65.12 (a) (“Other Definitions”, subd [h]) was adopted on November 28,1977 and applies to personal injuries sustained on or after December 1,1977. The new regulation was made necessary in order to comply with the 1977 amendments.to the statute. (L 1977, ch 892, § 6 ei sea.)

2 Mr. Barone has recovered $150,000 in a settlement of his negligence action against Elan’s.

3 Before the enactment of section 388 in 1958 (L 1958, ch 577), the vicarious liability concept applied only to the use and operation of a motor vehicle “upon a public highway” and did not extend to “the situation of an accident upon private roadways and parking lots.” (Farber v Smolack, 20 NY2d 198, 204; see 1958 Report of NY Law Rev Comm [NY Legis Doc 1958, No. 65], pp 589-590.)

4 ■4. In an action by a covered person against a noncovered person for personal injuries arising out of the use or operation of a motor vehicle, “an insurer which paid or is liable for first party benefits * * * shall have a lien against any recovery to the extent of benefits paid or payable by it to the covered person.” The failure of a covered person to commence such an action within two years of accrual operates to give the insurer a cause of action for the amount of first-party benefits paid or payable against the party who may be liable to the covered person. (Insurance Law, § 673, subd 2.)

5 The argument that the “use or operation” limitation excluding on-premises conduct within the course of a business of a service station was not intended to include on-premises operation of a motor vehicle was never made to the referee or at Special Term. Before the referee claimant argued that the accident did not occur during the course of repair, while his contention at Special Term in opposition to the motion to confirm the referee’s report was that the exclusion applied only to the owner or employee of a service station, and he was neither.

6 In this instance, a “pedestrian injured through the use or operation of * * * a motor vehicle which has in effect the financial security required by [article 6] of the [Vjehicle and [TJraffic [L]aw”. (Insurance Law, § 671, subd 10.)

7 As this record discloses, an arbitrator hearing a first-party benefit claim has concluded that an on-premises scalding injury which occurred when an attendant *209removed the radiator cap from an overheated inert automobile is a loss arising from the “use or operation” of a motor vehicle.