How has New York law on bad faith claims against insurers developed since the Bi-Economy and Panasia decisions?
R. Steven Anderson and Kyle M. Medley provide analysis and historical perspective of two 2008 decisions from New York’s highest court. The full article, Tempest in a Teapot: New York’s Bi-Economy Decision Five Years Later, appears in The Association of Insurance & Reinsurance Run-Off Companies (AIRROC) quarterly journal, an excerpt appears below:
New York courts have a general reputation as being insurer-friendly in their resistance to policyholder claims for damages beyond policy coverage terms and limits. Historically, New York courts refused to recognize contract-based bad faith claims for breach of a first-party insurance contract. Insureds have fared no better proceeding under a tort theory of bad faith liability, absent “egregious tortious conduct” and “a pattern of similar conduct directed at the public generally.” See Roconova v. Equitable Life Assurance Society, 83 N.Y. 603, 615 (N.Y. 1994).
In 2008, however, two decisions by New York’s highest court – Bi-Economy Market, Inc. v. Harleysville Insurance Co., 10 N.Y.3d 187 (N.Y. 2008), and a companion decision handed down on the same day, Panasia Estates, Inc. v. Hudson Insurance Co., 10 N.Y.3d 200 (N.Y. 2008) – threatened to alter the legal landscape in New York by recognizing a policyholder’s right to seek recovery of consequential damages beyond policy limits where such damages were the direct consequence of insurer claims handling that violated the insurer’s obligation of good faith and fair dealing and were foreseeable by the parties at the time the policy was issued.
The Bi-Economy decision initially caused jurists and insurers to speculate as to whether the decision had opened the floodgates to claims against insurers beyond policy limits. Much of the speculation centered on Judge Robert S. Smith’s strongly-worded dissent in Bi-Economy, which predicted that the majority’s decision would “open the door” to punitive damage claims against insurers in New York ..."