In my previous blog post I discussed how the law in New York currently applies to first-party “Bad Faith” claims – in particular those involving disclaimer of coverage. In this week’s blog I will look at the law in New York as it applies to certain claims practices, specifically what has come to be known as “low balling.”
“Low balling” is a negative term that refers to the claims practice of adjusters deliberately offering very low amounts for a claim despite knowing full well that it is worth substantially more. This is done in the hopes that the policy holder will accept the offer because they need money immediately to mitigate their loss or are unaware of the actual value of their claim. It is particularly insidious (and effective) when used against an individual or small business that has suffered a catastrophic loss and does not have the resources or time to fight the carrier in order to get an adequate settlement.
A case that exemplifies this type of practice, and illustrates the current state of the law in New York, is Marsel Mirror & Glass Products v. American International Underwriters Insurance Company.1 In this case, the plaintiff, Marsel Mirror, had taken out an insurance policy to protect its interests in the event one of its major customers went bankrupt. When this occurred the carrier refused to pay the claim until it was approved by the bankruptcy receiver, a process which could take up to two years. Marsel Mirror decided to settle and executed a release of related claims against the carrier.
Marsel subsequently sued the carrier for unfair claims settlement practices, seeking punitive and compensatory (bad faith) damages claiming the carrier had fraudulently induced Marsel to settle the claim for substantially less than its actual value.
The Court of Appeals ruled against Marsel Mirror primarily on the basis of the release. The Court opined that Marsel Mirror had failed to establish the requisite elements necessary to set aside a release. Barring fraud, illegality, mutual mistake, or ambiguous language, the Court ruled that the release would stand and Marsel Mirror’s claim for unfair claims settlement practices had to be dismissed.
Significantly, the Court dismissed the “bad faith” punitive damages element of the claim with strong language, stating:
[A] request for punitive damages is parasitic and possesses no viability absent its substantive cause of action such as fraud.
This is reflective of New York’s strict and, in my view, anti-consumer treatment of causes of action sounding in bad faith. Decisions of this kind strengthen the already strong hand of insurance carriers against their insureds and encourage unfair practices like low balling. Until a more even handed approach is adopted by the Courts and the State Legislature, consumers are well advised to be cognizant of their rights and aware of the potential pitfalls that may arise in the event of a loss.
1 Marsel Mirror & Glass Prod. v. Am. Int’l Underwriters Ins. Co., 83 N.Y. 2d 603 (1994).