Insurer Bad Faith

New York recognizes bad faith mainly in the liability setting: an insurer that controls the defense and settlement of a claim against its insured may be liable beyond the policy limits if it acted in gross disregard of the insured's interests (Pavia v State Farm Mut. Auto. Ins. Co., 82 NY2d 445 (1993)). For first-party no-fault claims, the remedies for slow or wrongful handling are statutory: two percent monthly interest on overdue benefits and a limited attorney's fee (Insurance Law § 5106(a)), preclusion of untimely defenses (Presbyterian Hosp. in City of N.Y. v Maryland Cas. Co., 90 NY2d 274 (1997)), and the claim-practice duties in 11 NYCRR 65-3.2.

In a no-fault claim the remedies are statutory: interest at two percent per month (Insurance Law § 5106(a); 11 NYCRR 65-3.9(a)); an attorney's fee within the limits of 11 NYCRR 65-4.6; return of the arbitration filing fee (11 NYCRR 65-4.2(b)(1)(iii)); and preclusion of defenses not raised within 30 days (Presbyterian Hosp. in City of N.Y. v Maryland Cas. Co., 90 NY2d 274 (1997)). An insurer may not condition settlement on waiver of interest (11 NYCRR 65-3.9(b)). In liability coverage, a bad-faith refusal to settle can make the insurer liable for a judgment above the policy limits (Pavia v State Farm Mut. Auto. Ins. Co., 82 NY2d 445 (1993)).

In the liability setting, the insured must show that the insurer acted in gross disregard of the insured's interests: a deliberate or reckless decision to disregard them when a reasonable settlement within limits was available (Pavia v State Farm Mut. Auto. Ins. Co., 82 NY2d 445 (1993)). The evidence is the claim file: what the insurer knew about liability and damages, the demands it received, and its responses. In a no-fault claim the proof is documentary: the dates proof of claim was received, verification requested and followed up, and the NF-10 issued, measured against 11 NYCRR 65-3.5, 65-3.6 and 65-3.8. Overdue means interest and a fee (Insurance Law § 5106(a)).