Bad Faith Claim Investigation May Subject Insurance Company to Private Remedies Under Consumer Protection Law

Last month, a New York Supreme Court affirmed that insurance companies are subject to that state’s consumer protection law, General Business Law § 349. In 37 West 24th Street, LLC v. Seneca Insurance Company, Inc., the trial court denied Seneca Insurance Company’s motion to dismiss the plaintiff’s claim under that statute.¹

The plaintiff, a Seneca policyholder, alleged that Seneca investigated the plaintiff’s insurance claim in bad faith and unfairly delayed the investigation by asking for documents wholly unrelated to the claimed loss. The plaintiff further alleged that Seneca intentionally delayed the investigation to place the plaintiff in the position where it would either have to accept what it felt was an inadequate settlement of the claim or bring suit against Seneca to avoid being barred from doing so under the policy’s two-year limitations period for bring legal actions under the policy.

Noting that the plaintiff essentially “alleg[ed] that the defendant intentionally prolonged and/or delayed the investigation of the plaintiff’s insurance claims in order to force the plaintiff into an unfavorable settlement or costly lawsuit before the statute of limitations expired,” the court concluded that the plaintiff “successfully plead that the defendant’s conduct was materially misleading and deceptive,” satisfying one element of a claim under section 349. The other two elements are,

1. the challenged act or practice must be “consumer-oriented” and
2. the plaintiff must suffer damages as a result of the act or practice.²

Separately, the court also held that the plaintiff adequately pled its entitlement to consequential damages resulting from Seneca’s breach of the insurance contract. The court noted that:

Consequential damages resulting from a breach of an insurance contract may be asserted, so long as the damages were ‘within the contemplation of the parties as the probable result of a breach at the time of or prior to contracting.’³

Although not discussed in the ruling, section 139 permits courts to award attorneys’ fees to a person who successfully asserts a claim under that statute.⁴
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¹ 37 West 24th Street, LLC v. Seneca Ins. Co., Inc., No. 150104/2017, 2018 WL 1747310 *1 (N.Y. Sup. Apr. 6, 2018) (Trial Order).
² Id.
³ Id. at *2 (quoting Bi-Economy Mkt., Inc. v. Haleysville Ins. Co. of N.Y., 10 N.Y.3d 187, 192, 886 N.E.2d 127 (App. 2008)). New York courts do not recognize a separate cause of action in tort for an insurance company’s bad faith handling of a claim; rather, they permit consequential damages under a breach of contract theory. See Acquista v. New York Life Ins. Co., 285 A.D.2d 73, 82 (App. 2001).
⁴ N.Y. General Business Law § 139(h).