Bad Faith Bill Could Dull NY’s ‘Pro-Insurer’ Edge

Law360 Insurance Authority

  • November 18, 2022

The perception of New York courts as pro-insurer venues has made the state a top choice for insurers across the country to litigate coverage disputes. A nearly decadelong legislative effort to tilt the scales back in favor of policyholders, however, remains an uphill battle.

One reason for that preference, policyholder attorneys say, is that unlike some states like Washington or Florida, New York does not give policyholders an independent private right of action, separate from a breach of contract claim, to sue their insurers for delaying resolution of their claim or otherwise acting in bad faith. Instead, the job of regulating insurers' behavior is left to New York's Department of Financial Services, a regulatory system that the attorneys say inadequately addresses a core reality of coverage disputes: Policyholders are inherently disadvantaged since insurers, with far more resources at their disposal, can win and even make money by simply engaging in delay tactics.

"New York is commonly perceived as a pro-insurance company state, distinct from the state of Washington and Oregon, or even California, which are perceived as pro-policyholder states. Some New York courts see themselves as the protectors of the financial industry, while let's say some Washington and Oregon courts see themselves as protectors of the timber industry," Robert M. Horkovich, an Anderson Kill PC partner who represents policyholders, told Law360.

He said that save for two exceptions — an insurer wrongly denying its duty to defend an insured in a lawsuit or failing to settle a suit within a policy's coverage limits — policyholders lack a private means to sue insurers for acting in bad faith in New York. As a result, they are largely left without any recourse if an insurer offers a settlement on the eve of trial when it could have settled from the beginning, all while policyholders incur attorneys fees, Horkovich said.

"It is mystifying why a violation of New York insurance law would not give rise to a private cause of action in New York. The New York Legislature has chosen not to give New York citizens a private cause of action, and New York courts have backed that up," he said.

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