Tonight's Weird (but true) case analysis was inspired by a commercial which is currently airing on the NY airwaves. The commercial has a judge rendering a verdict in which the defendant is ordered to pay $100,000. The plaintiff's counsel then turns to the plaintiff and says that the defendant's insurance may only cover some of the verdict, but that he thinks the defendant's family has money saved for their son's college fund which they can go after to cover the balance. The defendant's mother than says to her attorney - can they do that? To which the attorney responds in the affirmative. The commercial closes with the announcer saying that it is important to make sure that you have enough insurance.
After watching the commercial, we got into a discussion as to whether this could occur under NY law. I answered that it could happen, but that not having adequate insurance coverage is not the only way that a plaintiff could reach into a defendant's savings. Sometimes, a defendant may have enough insurance coverage to satisfy a plaintiff's demand, but his carrier may refuse to pay the claim and force the matter to go trial where the plaintiff may get a verdict which exceeds the coverage. I was then asked - what can the defendant do about it? My response - sue his insurance carrier for "bad faith" for failing to settle the claim within the policy limits.
Following the conversation, I decided that it might be beneficial to discuss bad faith as a Wednesday Weird But True case, so I selected Reifenstein v. Allstate Insurance Co., 92 A.D.2d 715, 461 N.Y.S.2d (4th Dept. 1983) which is a good example of how such a claim can arise.
In Reifenstein, the insured was the driver of a car which left the road and struck a utility pole, killing the passenger. After the accident, the decedent's family contacted the driver's carrier (Allstate) and asked for $10,000 to settle the case. As noted by the court,
In stating the standard of law to be applied, the Appellate Division explained:
After watching the commercial, we got into a discussion as to whether this could occur under NY law. I answered that it could happen, but that not having adequate insurance coverage is not the only way that a plaintiff could reach into a defendant's savings. Sometimes, a defendant may have enough insurance coverage to satisfy a plaintiff's demand, but his carrier may refuse to pay the claim and force the matter to go trial where the plaintiff may get a verdict which exceeds the coverage. I was then asked - what can the defendant do about it? My response - sue his insurance carrier for "bad faith" for failing to settle the claim within the policy limits.
Following the conversation, I decided that it might be beneficial to discuss bad faith as a Wednesday Weird But True case, so I selected Reifenstein v. Allstate Insurance Co., 92 A.D.2d 715, 461 N.Y.S.2d (4th Dept. 1983) which is a good example of how such a claim can arise.
In Reifenstein, the insured was the driver of a car which left the road and struck a utility pole, killing the passenger. After the accident, the decedent's family contacted the driver's carrier (Allstate) and asked for $10,000 to settle the case. As noted by the court,
[A]n Allstate agent refused a demand for a $10,000 settlement made by the decedent's father and offered instead $9,500, explaining to the father that Allstate does “not pay the full policy limits of $10,000” and that “if [he] got a lawyer, a lawyer would charge a fee and ... [he] would eventually end up with even less than the amount Allstate was offering”; that shortly thereafter the agent offered to settle for $10,000 on the condition that the decedent's parents “furnish [Allstate] an affidavit setting forth the assistance rendered by the decedent in or about [the] home and the payments the decedent furnished for the parents' support”, and told decedent's mother “that such affidavit was required by State Law.”After Allstate refused to meet the demand, the decedent's family filed suit against the driver and obtained a judgment in the amount of $48,611.60, clearly a sum greater than the $10,000 policy. Faced with this judgment, the driver filed suit against Allstate, seeking compensatory and punitive damages based on Allstate's bad faith failure to settle the underlying suit.
In stating the standard of law to be applied, the Appellate Division explained:
Where it is alleged that an insured lost an actual opportunity to settle the negligence claim against him within the coverage limits of his policy by reason of the insurer's purported “bad faith,” he states a cause of action against the insurer to recover the excess judgment. Bad faith “is generally proven by evidence largely circumstantial in nature.”Although the trial court had dismissed the lawsuit against Allstate, the Appellate Division reinstated the claim for compensatory damages, explaining:
In this case the element of bad faith may be inferred from, inter alia, the certainty of liability arising out of the one-car accident and the obviousness that the damages would exceed $10,000; the initial refusal to settle for $10,000, an amount only $500 more than Allstate was willing to pay; the explanation given by Allstate to decedent's family for its refusal to settle; and, the delay in making the unconditional offer of $10,000. The fact that Allstate ultimately offered to settle for $10,000 without condition does not automatically relieve it of liability. This is but a factor for the jury to consider on the question of bad faith.
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