Exceptional Circumstances are Required for Relief in a Claim for Bad Faith

In a favorable decision to insurers on the issue of bad faith, the New York Northern District was recently called upon to determine whether an insured under a Homeowner’s policy had stated a viable cause of action. In Ripka v. Safeco Ins., 2015 U.S. Dist. LEXIS 67595 (N.D.N.Y May 26, 2015), the District Court made it clear that New York courts will not, except in very limited circumstances, award tort and punitive damages in addition to contract damages against insurers who deny claims.

Following a plumbing leak that caused substantial damage to the insured’s home and its contents, the insured reported the damage to her insurer. In her claim she alleges that the insurer initially failed to dispatch any representatives to inspect the damage and that it wasn’t until after repeated urging, that the insurer eventually sent a contractor to “inspect only limited physical damages to the real property”. She claimed that, in her repeated conversations with her insurer’s representatives, they uniformly “claimed that the damages were within the scope of coverage and [assured her that she] would be promptly compensated”. These conversations were allegedly followed by a series of delaying tactics such as continually asking for the same information, switching adjusters without notice, refusing to communicate for long periods of time and refusing to inspect the premises before ultimately failing to “pay the claim in full or tender interest for the unsubstantiated delays in payment”.

The complaint itself asserts a number of causes of action and was described by the court as “hardly a model of clarity.” The insurer moved to dismiss the following claims for relief asserted by the insurer: 1) a claim for relief pursuant to New York Statute 11 N.Y.C.R.R §216 which implements a provision of New York State Insurance Law; 2) claims related to violations of New York General Business Law § 349; and 3) claims for recovery of consequential and punitive damages.

The court, in refusing follow the current trend set by other states to adopt the tort of bad faith, allowed the insurer’s motions to dismiss. In order to substantiate a claim that for consequential damages, the court stated that an insured must allege that the specific injury was of a type which was contemplated at the time of contracting. Here, there was no identification of any provision in the Homeowner’s policy which suggested that any special damages should or would be available in the event of a breach. The court stated that “New York does not recognize an independent tort for the bad faith denial of insurance coverage, and [the insured] has not offered any other independent tort basis on which to base liability for this alleged mental distress” The court also explained that the standard for awarding punitive damages in first-party insurance actions is a strict one and will only be available in very limited circumstances, however it may be recoverable in a breach of contract action if it is necessary to vindicate a public right. Therefore, a properly pleaded punitive damages claim requires that the insured shows 1) the insurer’s conduct was actionable as an independent tort; 2) the tortious conduct was gross, morally reprehensible or of such wanton dishonest as to imply a criminal indifference to civil obligations; 3) the conduct was directed towards the plaintiff and 4) the conduct was part of a pattern directed at the public generally.

The court also dismissed the claim under the provisions of 11 N.Y.C.R.R § 216 because this statute requires there to be a private cause of action and that none existed in this case. The claim under New York General Business law was also dismissed on the grounds that the insured failed to show that the ramifications of the insurer’s actions affected the public at large as required under the statute.

Of the numerous claims asserted in the insured’s complaint, only the breach of contract claim remained viable.