There are general principles established in New York law that concern the damages that are available to insurance policyholders when they bring a lawsuit for a bad-faith insurance denial.Breach of Contract and Breach of the Duty of Good Faith
A plaintiff in a bad-faith insurance denial action will frequently allege claims of breach of contract and breach of the duty of good faith and fair dealing. These claims arise when the insurer improperly denies a claim under a business, property, homeowner, or life insurance policy. Although these two claims are closely related to one another, there can be differences between them. For instance, a breach of contract claim may result from the failure to pay for a loss, while a breach of the duty of good faith may arise from a failure to fairly, timely, and accurately examine the claimed loss.Consequential Damages
In 2008 the New York Court of Appeals held that policyholders can recover consequential damages for an insurance company's breach of the duty of good faith. These damages--referred to as "extra-contractual" damages--must have been foreseeable to the parties when they entered into the contract.
If, for instance, an insured suffers a calamitous event and does not receive payment from the insurance company, the insured may suffer additional losses beyond those initially incurred. An award of consequential damages, in this situation, is intended to place the insured in the position it would have been in had the contract been performed. It also may require the insurance company to pay damages beyond the policy limits.Punitive Damages
In New York, a claim for punitive damages exists when the defendant has acted with conscious disregard of the rights of others. This equates to conduct that is morally reprehensible, wanton, or exhibiting criminal indifference. The conduct also must be part of a pattern directed at the public generally. It is rare for New York courts to impose punitive damages on insurance companies.Consumer Protection Laws
While New York Insurance Law § 2601 sets forth "Unfair Claims Settlement Practices," there is no private right of action under the law and it can only be enforced by the government.
New York General Business Law § 349 protects against deceptive business practices. But, for it to apply, the insurer's conduct must impact consumers at large. Its reach is limited because private insurance contract disputes that are unique to the parties will not fall within the statute.
In addition, this is a rather weak consumer law because it only provides for actual damages and attorney's fees, as opposed to other state consumer protection laws, like New Jersey, that allow for treble damages.
Please contact New Jersey and New York Insurance Lawyer Eric Dinnocenzo at (212) 933-1675 for a free consultation if you have experienced a bad faith insurance denial.Damages - New Jersey
The following is a general overview of some of the categories of damages that are available in New Jersey courts when a policyholder brings a lawsuit for a bad-faith insurance denial.Breach of Contract and Breach of the Duty of Good Faith
The most common causes of action for failure to pay insurance benefits are breach of contract and breach of the duty of good faith. Typically, the damages for these claims are limited to the amount of the claim or the amount of the policy limits.Consequential Damages
New Jersey courts have held that when there is a breach of the duty of good faith, insurers are also liable for consequential damages caused by the denial of payment. Consequential damages have been defined as those damages that are "foreseeable" to the parties, and they may be in excess of the policy limits. A breach of the duty of good faith has been held to occur when the insurance company lacked a "fairly debatable" reason for the denial.Punitive Damages
An insurance company may be liable for punitive damages under New Jersey law if a plaintiff can show, by clear and convincing evidence, that the insurer acted in a wanton and malicious manner when it denied the claim. Punitive damages, however, are rare in New Jersey and most states.New Jersey Consumer Fraud Act
The New Jersey Consumer Fraud Act ("CFA") is a statute that protects consumers by allowing them to recover treble damages and attorney's fees arising from an unconscionable commercial practice. This is a powerful protection for consumers.
The New Jersey Supreme Court has held that the CFA applies to the sale of insurance policies. Although courts have been divided on whether it applies to insurance denials, there is no apparent reason why it should not. In fact, the Third Circuit Court of Appeals has stated:
We conclude that while the New Jersey Supreme Court has been silent as to this specific application of CFA, its sweeping statements regarding the application of the CFA to deter and punish deceptive insurance practices makes us question why it would not conclude that the performance in the providing of benefits, not just sales, is covered, so that treble damages would be available for this claim under the CFA.
Weiss v. First Unum Life Ins. Co., 482 F.3d 254 (3d Cir. 2007).
You can see my article published on this topic in the New Jersey Law Journal: Does the Consumer Fraud Act Apply to First-Party Insurance Claims?
Without the protections of the New Jersey Consumer Fraud Act, policyholders may be left vulnerable to insurance companies that decide to routinely reject claims as part of their business model without fear of any meaningful repercussions. After all, in many cases, the worst that could happen to the insurance company would be that it would ultimately have to pay the claim, after the policyholder is forced to commence litigation to enforce his or her rights.
Please contact New York and New Jersey Insurance Lawyer Eric Dinnocenzo at (212) 933-1675 for a free consultation if you have experienced a bad faith insurance denial.