Mark B. Seiger and Jeffrey L. Kingsley on Panasia Estates v. Hudson Insurance Company and Bi-Economy Market v. Harleysville: New York's New Standard With Respect to First-Party Bad Faith Claims
Previously, New York’s highest Court did not recognize an independent tort cause of action for an insurer’s alleged failure to perform its contractual obligation under an insurance contract. New York’s seminal case for that proposition, Rocanova v. Equitable Life Insurance Society, was routinely followed. The lone rogue case which provided a pathway for insureds to receive greater protection was the First Department’s decision in Acquista v. New York Life Insurance Company. Unlike Rocanova, however, Acquista was not followed by any New York Court … until the Court of Appeals’ rulings in Bi-Economy Market, Inc. v. Harleysville Insurance Co. of New York, __ N.Y.3d __, 2008 N.Y. LEXIS 278 (N.Y., Feb. 19, 2008) and Panasia Estates, Inc. v. Hudson Ins. Co., __ N.Y.3d __, 2008 N.Y. LEXIS 275 (N.Y. Feb. 19, 2008). In this commentary, insurance coverage attorneys Mark B. Seiger and Jeffrey L. Kingsley examine this landmark discussion.
Seiger and Kingsley write “[u]ntil recently, 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).” ”
The authors also state “[i]n Panasia Estates v. Hudson, the Court of Appeals once again revisited the issue of whether an insured’s claim for consequential damages is barred by the terms and conditions of the insurance policy … the lower court in denying Hudson’s motion for summary judgment citing to the reasoning in Acquista, namely that an insured may recover foreseeable damages, including consequential damages, beyond the limits of its policy, for breach of a duty to investigate, bargain for and settle claims in good faith.”
Seiger and Kingsley conclude that “[t]he end result might be a potential increase in these types of litigations going to trial, and the possibility that jurors might have an opportunity to make punitive-like awards.”