Personal Injury Law

N.Y. Insurance Companies are FINALLY Liable for Bad Faith!

By JimReed

Hallelujah!  It’s about time!  Traditionally, N.Y. has been one of the few states in the United States that did NOT permit a “bad faith” claim against an insurance carrier except under VERY limited circumstances.  A recent N.Y. Court of Appeals case (Bi-Economy Market Inc. v. Harleysville Insurance Company)  changed all that in a decision that is a HUGE benefit to N.Y. consumers.

First, let’s talk about what is “bad faith”?  That is when an insurance company puts its own interests above that of its own customers by failing to act reasonably in settling a claim that has been brought against its own customer.  That’s why we buy insurance, right?  We buy insurance so if someone sues us, our insurance company will take care of it so our personal assets (our house, cars, bank accounts, etc.) are not exposed to risk. 

Here’s an example of a typical bad faith scenario:  Joe Blow buys a car insurance policy that has liability limits of $300,000.  Joe has too much to drink at an office Christmas party and causes a bad accident where a young woman is very badly injured.  The lawyer for the injured woman says to Joe’s insurance company, “we will accept $300,000 in settlement of this claim”.  By settling for this amount, Joe would be totally off the hook.  But Joe’s insurance company thinks they can save some money so they refuse to settle for the policy limits of $300,000.  The insurance company refuses even after being presented with tons of proof that the young woman’s claim is worth way more than $300,000.  The insurance company refuses even though they know that by settling now, Joe would be totally off the hook.  So the case goes to trial and a jury returns a verdict of $750,000.  The insurance company pays their $300,000 and guess who is on the hook for the other $450,000?  Yup, poor Joe.  And all because the insurance company was trying to save their money rather than doing what was right for Joe.

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Full post as published by New York Injury Law Blog on February 23, 2008 (boomark / email).