Why Bad Faith Claims Against NY Insurers Usually Fail
Bad Faith is Not Just Rhetoric; It Has Legal Significance - Unless You're in New York
While the term "bad faith" may seem like mere inflammatory rhetoric to some, the truth is that this term has legal significance, because if an insurer is found by a judge or jury to have acted in bad faith, the consequences for the insurer can be severe, such as being assessed punitive damages and attorneys' fees.
So, at what point is an insurer liable for bad faith?
Although the answer to this question should be relatively simple, the truth is far more complicated, because the litmus test for bad faith varies widely depending on which state you are in. Some states have found bad faith where an insurer was little more than negligent in failing to timely and properly settle its insured's claim; at the other end of the spectrum are states like New York, whose powerful insurance lobby has successfully resisted efforts to enact any meaningful oversight of its industry practices.
As a result, the rule in New York is that bad faith may only be found where the claimant makes
"[A]n extraordinary showing of disingenuous or dishonest failure to carry out a contract."
Thus, as a practical matter, a New York insurer can stonewall, and refuse to settle a claim that is worth far more than its insured's policy for several years, and even up until the time that the jury returns with its verdict - with absolutely no adverse consequence.
In short, while it may (and likely will) prove extremely frustrating that your liability insurer - or that of the entity or person you are suing - is unreasonably refusing to settle your personal injury claim relatively quickly, you should bear in mind that the insurance company has little, if any, incentive to abide by your wishes.
What could happen to your insurer if they don't deal fairly with you? Not much.
One Important Final Note - and Caveat - the Business Interruption Policy
This rule, which effectively renders it difficult, if not almost impossible, to hold a liability insurer liable for bad faith refusal to resolve or pay on an insured's claim does not hold true across the board for all forms of insurance; the rule is apparently different in the context of business interruption insurance, where, under certain circumstances, an insurer can be held liable for consequential damages flowing from the insurer's failure to abide by its end of the insurance contract.