A New York and New Jersey Lawyer Who Represents Policyholders and Beneficiaries in Life Insurance Denial Cases

Yesterday I attended a CLE at the NYC Bar Association that focused on insurance disputes. Sitting through it, and it was a good program, by the way, I found it particularly interesting that there is an ongoing debate between insurance company and policyholder advocates about what the case law stands for and what the requirements are for a bad faith cause of action, specifically in terms of when and how a policyholder can be entitled to consequential — or, extra-contractual — damages.

To be clear, it’s interesting to me, but also rather foreseeable, since the case law can be vague and amorphous, discussing conceptual topics while at times avoiding specifics about how to plead and pursue bad faith claims. And, of course, it’s also foreseeable because different sides in legal controversies often disagree about the law!

The guiding case in New York for consequential damages in the insurance context is a Court of Appeals case decided in 2008, Bi-Economy v. Harleysville.

It is my–and policyholder attorney’s–contention that if a policyholder pleads “breach of contract” for an insurance denial, the policyholder may receive consequential damages. These are foreseeable damages that flow from, and occur after a breach of contract. This makes sense because consequential damages are an established category of damages for a whole array of breach of contract claims.

Insurance companies have a different spin on this, and insist that the plaintiff plead and prove “bad faith” on the part of the insurance company. They argue that there must be a tort claim such as gross negligence that is proven in order for there to be an award of damages above and beyond the insurance policy.

Of course, I think I am in the right. After all, the Bi-Economy court stated:

Bi-Economy contends that the courts below erred in dismissing its breach of contract claim seeking consequential damages for the collapse of its business resulting from Harleysville’s failure to fulfill its obligations under the contract of insurance. We agree and therefore reverse the order of the Appellate Division and reinstate that cause of action.

Seems pretty clear to me.

Bi-Economy involved business interruption insurance, and when the claim was denied, the business went under and thus arose the claim for consequential damages, because ordering the insurer to pay the money it originally should have paid did not compensate the insured for going out of business and lost profits. The insured would not be in the position it otherwise would have if the claim had been honored. The very purpose of business interruption coverage, the Court declared, makes it foreseeable that if coverage is not provided there may be a loss of business – and the insured should be compensated accordingly.

Interesting stuff, at least for insurance law geeks. That said, this particular dispute is over something that should be a “given” in insurance claim jurisprudence. What is needed in New York are stronger consumer protection laws to protect consumers who encounter bad faith insurance denials.

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