Legal Updates

NY Insurance Bad Faith Legal Update - Primary Insurance Carrier Prevails over Excess Insurance Carrier

New York’s Appellate Division, 1st Department, (which oversees Manhattan, The Bronx & Westchester County), issued a decision in “General Motors Acceptance Corp. v. NYC Central Mut. Ins. Co., 116 A.D.3d 468, 983 N.Y.S.2d 513 (1st Dept. 2014), which can only be deemed as a victory for Primary Insurance Carriers responsible for the defense of a personal injury lawsuit. [Click Here to See Decision] The case arose from a motor vehicle accident where a claimant brought suit against a driver who had primary policy limits of $300,000 and a vehicle lessor, GMAC, who had excess coverage of $1,000,000. After a jury awarded the claimant $1,500,000, the primary carrier paid its limits of $300,000 and the remaining $1,200,000 was paid by the excess carrier and GMAC. Shortly thereafter, GMAC and the excess carrier sued the primary carrier for its bad faith refusal to settle the claim within its primary policy limits.

In the bad faith action, the lower court denied the primary carrier’s summary judgment motion, claiming there were triable issues of fact whether the refusal to settle was made in bad faith. However, the appellate court reversed and held the primary carrier was entitled to a dismissal of all bad faith claims. The court noted that the claims file indicated there was conflicting medical evidence whether the claimant’s injuries would surpass the No-Fault Threshold, which provided the primary carrier a justifiable basis to wager that a jury would render a verdict against the plaintiff. Clearly, the primary carrier’s wager was wrong, and the appellate court even held that the primary carrier’s decision not to make a settlement offer “was a mistake in judgment.”

However, the appellate court also noted that an insurance carrier’s negligence does not rise to the level of bad faith and held that an insurance carrier does not commit bad faith “by failing to heed contrary evidence” if it has a “reasonable belief” that a claimant does not have a cognizable claim. This decision is in line with the controlling authority of “Pavia v. State Farm Mut. Auto. Ins. Co.” 82 N.Y.2d 445, 605 N.Y.S.2d 208, 626 N.E.2d 24 (1993) which holds that an insurance carrier should not be penalized for its pursuit of an investigation/defense which ultimately does not prevail. The lesson here is clear: if a primary carrier rolls the dice and gets hit with an excess verdict, they had better be sure that their claims file shows they had a good faith defense, albeit a fruitless one.

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