A bill is currently under consideration in both houses that would turn New York Bad Faith Law on it’s head.
It would create a new section of the Insurance Law, 2601-a, that would provide a private right of action against an insurer, if a policy holder established, by a “preponderance of the evidence” that an “insurer’s refusal to pay or unreasonable delay” in payment was not “substantially justified.”
Until now, proving Bad Faith in New York was very difficult, however, this statute would open the flood gates to Bad faith litigation in New York.
The proposed statute provides that an insurer is not substantially justified in refusing to pay or in unreasonably delaying payment when the insurer:
1. Failed to provide the policyholder with accurate information concerning policy provisions relating to the coverage.
2. Failed to effectuate in good faith a prompt, fair and equitable settlement of a claim submitted by such policyholder in which liability of such insurer to such policyholder was reasonably clear.
3. Failed to provide a written denial of a policyholder’s claim with a full and complete explanation of such denial, including references to specific policy provisions wherever possible.
4. Failed to make a final determination and notify the policyholder in writing of its position on both liability for and the insurer’s valuation of a claim within six months of the date on which it received actual or constructive notice of the loss upon which the claim is based.
5. Failed to act in good faith by compelling a policyholder to institute suit to recover amounts due under its policy by offering substantially less than the amounts ultimately recovered in suits brought by such policyholder.
6. Failed to advise a policyholder that a claim may exceed policy limits, that counsel assigned by the insurer may be subject to a conflict of interest, or that the policyholder may retain independent counsel.
7. Failed to provide, on request of the policyholder or their representative, all reports, letters or other documentation arising from the investigation of a claim and evaluating liability for or valuation of such claim.
8. Refused to pay a claim without conducting a reasonable investigation.
9. Negotiated or settled a claim directly with a policyholder known to be represented by an attorney without the attorney’s knowledge or consent.
10. Failed to pay on one or more elements of a claim where there is no dispute as to liability notwithstanding the existence of disputes as to other elements of the claim where such payment can be made without prejudice to either party.
11. Acted in violation of section two thousand six hundred one of this article or any regulation promulgated pursuant thereto.
Any policyholder who establishes liability pursuant to this section is entitled to recover, in addition to amounts due under the policy, interest, costs and disbursements, compensatory damages, and reasonable attorneys’ fees incurred by the policyholder from the date of the loss, in recovering monies due pursuant to the terms of the policy, as well as such additional punitive damages as the court may allow on a showing that the acts giving rise to liability occur with such frequency as to indicate a general business practice.
All amounts recovered from an insurer as damages and reasonable attorneys’ fees in any action authorized in this section shall be excluded by the insurer in its determinations of the premiums it will charge all policyholders on all policies issued by it.
It is uncertain whether this Act will pass and what implications it will have, but we will report on the outcome as soon as we receive the information.
Rosa M. Feeney, Esq.