A New York trial court recently denied an insurer’s motion to dismiss the insured’s claim of consequential/extra-contractual damages for pain and suffering and held that the insured may proceed with discovery to explore whether the insurer’s denial of benefits violated the duty of good faith and fair dealing.  Laura Savino v. The Hartford, 2009 N.Y. Slip.  Op. 30823 (Sup. Ct. Suffolk Co. Mar. 25, 2009).

In this case, the insured filed a claim with its no-fault insurer for personal injuries allegedly caused by a car accident. Under New York’s no fault statute, personal auto insurers must provide their motorist insureds with coverage for basic economic loss (as defined by Insurance Law § 5102) up to a maximum of $50,000 irrespective of which party is at fault. Although the insured’s physician concluded that she needed surgery to her shoulder as a result of the accident, her insurer requested a peer review from another physician, who concluded that she did not need surgery at the time.  Relying on the peer review, the insurer denied her claim for medical expenses.

The insured subsequently sued its no-fault insurer for bad faith and fraud (and perhaps on other grounds not discussed in the decision).  The insurer then moved to dismiss the claims for punitive damages and consequential-damages in excess of the policy limits.  Relying Bi-Economy, the court held that “a recovery for compensatory damages may be viable” as the record “support[s] a finding that [the insurer’s] conduct was possibly a breach of good faith and fair dealing.” Thus, the court denied “the motion to dismiss the extra-contractual compensatory damages claim with leave to renew, if warranted, after discovery in this action has been completed.”  The court further noted that     “[d]iscovery should now commence but this Court will not permit the Plaintiff to engage in discovery based upon speculation and the demands for documents served should be restricted to the parties and persons involved in this litigation.”

The court did, however, dismiss the insured’s claim for punitive damages as the insured did not “allege either ‘wanton dishonesty as to imply a criminal indifference to civil obligations’ on the part of the Defendant or that the salutary purposes of New York Insurance Law Article 51 are in danger of being undermined by the actions of the Defendant as required to support punitive damages.”

Click here to read the decision.

As previously reported here and here, in February of 2008 New York’s highest state court held that in addition to policy proceeds, an insured may recover extra-contractual damages in the form of consequential damages resulting from an insurer’s breach of the policy, under limited circumstances. Subsequent cases applied Bi-Economy to other policies, including for example to disability insurance in Hoffman v. Unionmutual Stock Life Ins. Co., 857 N.Y.S.2d 680 (App. Div. 2d Dep’t 1008), a first party claim under a homeowner’s policy in Chaffee v. Farmers New Century Ins., No. 5:04-CV-1493 (N.D.N.Y., Sept. 24, 2008) [previously discussed here], a third party liability coverage in Silverman v. State Farm Fire & Cas. Co., 867 N.Y.S.2d 881 (N.Y. Sup. Ct. 2008), and to an environmental pollution liability policy in Handy & Harman v. AIG, 2008 WL 3999964 (N.Y. Sup. Ct. 2008).