Attorney, Goldberg Segalla LLP

The standard for a first-party bad-faith claim in New York was perhaps significantly and permanently altered on February 19, 2008 with the Court of Appeals' decisions in Panasia Estates v. Hudson Insurance Company and Bi-Economy Market v. Harleysville respectively. Are extra-contractual damages far behind?

New York 's highest court did not recognize an independent tort cause of action for an insurer's alleged failure to perform its contractual obligations under an insurance contract. Rocanova v. Equitable Life Assur. Soc., 83 N.Y.2d 603, 634 N.E.2d 940, 612 N.Y.S.2d 339 (1994). The Rocanova decision, which was routinely followed throughout the state, stood for the proposition that an insured would typically receive contractual damages for an insurer's failure to adhere to the terms and conditions of the insurance policy. Absent a showing of "egregious tortious conduct" directed at the insured that demonstrates a "pattern of similar conduct direct at the public generally," punitive damages and other forms of extra-contractual damages were precluded in an insured's award. Rocanova, supra; see also New York Univ. v. Continental Ins. Co., 87 N.Y.2d 308, 662 N.E.2d 763, 639 N.Y.S.2d 283 (1995).

 

For the past thirteen years since Rocanova, the only decision which provided insureds with a pathway towards receiving greater protection in first-party bad faith claims was the Appellate Division, First Department's decision in Acquista v. New York Life Insurance Company, 285 A.D.2d 73 (2d 2001). The Acquista court held that an insured "may be employed to interpose a claim for consequential damages beyond the limits of the policy for the claimed breach of contract." Id. As significant as many practitioners believed Acquista to be at the time, it was never followed by any court in New York in a subsequent decision until recently. The Court of Appeals decisions in Panasia and Bi-Economy appear to adopt the Acquista position that consequential damages are allowable in a first-party bad faith claim.

For more information on New York ''s standard, contact Jeff Kingsley.