Law on Claims for Bad Faith Denials of Liability Coverage Still Unsettled

, New York Law Journal


Michael P. Kandler, a partner at Callan, Koster, Brady & Brennan, writes that any thorough liability coverage analysis should include an answer to the question of whether the insurance carrier could possibly be held liable for damages in excess of the policy limit if a court later determines that a coverage denial was incorrect.

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What's being said

  • Max W. Gershweir, Law Office of Max W. Gershweir

    I must take issue with the author's thesis that New York law on liability insurer bad faith coverage denials is unsettled. In fact, it is well-established under New York law that a liability insurer that denies coverage may be liable for that portion of a judgment that exceeds the policy limit where its coverage denial had no "arguable basis" and it refused an opportunity to settle the claim within the policy limit based on that improper coverage denial. See Gordon v. Nationwide Mut. Ins. Co., 30 N.Y.2d 427 (1972); Decker v. Amalgamated Mut. Cas. Ins. Co., 35 N.Y.2d 950 (1974), modifying 43 A.D.2d 939 (2d Dept 1974); Bennion v. Allstate Ins. Co., 284 A.D.2d 924 (4th Dept 2001); Dawn Frosted Meats, Inc. v. Ins. Co. of N. Am., 99 A.D.2d 448 (1st Dept 1984), affd on op. below, 62 N.Y.2d 895 (1984). Indeed, the author alludes to this standard near the end of the article, but, I believe, erroneously characterizes it as what should be the law rather than what it actually is. The issue of "consequential damages" discussed in Bi-Economy and Panasia has nothing to do with "bad faith," let alone liability insurance. Rather, it relates to any extra-contractual damages foreseeably caused by an ordinary breach by a property insurer. I expect that any trial court opinions that purport that these cases have changed the well-settled bad faith standard applicable to liability coverage denials will be reversed if appealed.

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