Bad faith and consequential damages has long been a thorn in the New York plaintiff attorney’s side as they are virtually impossible to recover in most breach of contract actions. Recently, one plaintiff was able to recover attorney’s fees and costs by meeting the stringent standard set forth by New York case law.
In D.K. Property, Inc. v. National Union Fire Insurance Company of Pittsburgh,1 the plaintiff owned a building in Manhattan damaged by a neighboring construction project in or around October 2014. Plaintiff alleged that the rear wall of the neighboring building provided lateral support to the east exterior wall of plaintiff’s building, and when that rear wall was demolished, plaintiff’s building suffered structural movement and damage.
Defendant argued that New York courts do not, in the first-party insurance context, recognize a separate, independent, non-contractual cause of action for breach of the implied duty of good faith and fair dealing for “bad faith claims handling.”
The New York County Supreme Court restated existing law that a separate contract-based cause of action against an insurer for breach of its implied duty of good faith and fair dealing is permissible if the claim is not wholly duplicative of the insured’s claim for breach of the policy. In addition, plaintiff must allege and prove that the consequential damages it seeks were reasonably contemplated by the parties prior to contracting.
Regarding attorney’s fees, the court noted that it has long been held that an insured may not recover the legal fees incurred in bringing an action to settle its rights in an insurance policy.2 However, a narrow exception exists where the insured can prove that the carrier had no arguable basis to challenge its claim and can further show that no reasonable carrier would, under the facts, challenge the claim.3
The court concluded that:
Accepting all of the allegations of the amended complaint as true, particularly the claim that National Union’s own engineer agreed, in November 2016, that the negligent design and construction of the neighboring building was the source of distress to plaintiff’s building, the amended complaint sufficiently alleges a claim for the recovery of plaintiff’s attorneys’ fees….
I leave you with a quote from author Joanna Russ, who stated, “Ignorance is not bad faith. But persistence in ignorance is.”
1 D.K. Property, Inc. v. National Union Fire Ins. Co. of Pittsburgh, PA, 2018 NY Slip Op 28097, 2018 WL 1599486 (N.Y. April 2, 2018).
2 Mighty Midgets v. Centennial Ins. Co., 47 N.Y.2d 12, 21 (N.Y. 1979).
3 Sukup v. State of New York, 19 N.Y.2d 519, 522 (N.Y. 1967); Greenburgh Eleven Union Free School Dist. v. National Union Fire Ins. Co. of Pittsburgh, PA, 304 A.D.2d 334, 336-337 (1st Dept. 2003).