Perlbinder v. Vigilant Insurance Company, et al. 2021 N.Y. App. Div. LEXIS 450
The Second Department’s decision is noteworthy for several reasons. Initially, this litigation arose out of a dispute between the plaintiff/insured and the defendant/insurer over the extent of covered damages caused by Hurricane Sandy. In the resulting declaratory judgement action, the parties participated in the mandatory mediation program enacted by New York State in response to Hurricane Sandy claims.
During the mediation the parties agreed to settle the claim for $1.6 million. Pursuant to the settlement, the defendant insurer tendered approximately $400,000 to the plaintiff, asserting that the $1.6 million in settlement was inclusive of the insurer’s prior payments of nearly $1.2 million. The plaintiff rejected the $400,000 payment.
Plaintiff thereafter filed suit seeking recovery of the $1.6 million agreed amount. Plaintiff also asserted causes of action premised upon bad faith and the violation of General Business Law §349. Plaintiff then moved for summary judgment, and defendant cross-moved seeking dismissal of the bad faith and General Business Law causes of action. The trial court sided with the plaintiff.
On appeal, the Second Department affirmed the trial court’s decision. The court concluded that plaintiff established that the settlement papers required payment of the $1.6 million within twenty-one (21) days and made no reference, in any fashion, to a setoff based upon prior payments to the insured. Accordingly, the plaintiff was entitled to the full payment of $1.6 million.
The court went on to conclude that the trial court properly denied the defendant’s motion to dismiss the bad faith and violation of General Business Law causes of action. The court concluded, in both respects, that plaintiff had sufficiently pled these respective causes of action.
In light of this decision, we pulled the complaint to review the allegations. In short, plaintiff alleges that the defendant’s actions, “were egregious, morally reprehensible and exhibited a callous indifference to the civil obligations owed to [plaintiff] who had already suffered damage and loss from Sandy.” Plaintiff’s complaint made similar allegations underlying the bad faith and General Business Law claims, stating:
Upon information and belief, the unfair and bad faith conduct actions and deceptive practices engaged in by [defendant] described above, which concern a standard form policy and standard form Sandy Mediation Agreement, are typical of and form a part of [defendant’s] actions, policies and conduct with respect to its insureds generally and those insureds with Sandy property claims in particular, and are part of its usual and customary business practices.
The Second Department deemed these allegations as sufficient to survive a motion to dismiss for failure to state a claim.
In futuro: Initially, obviously, it is in every insurers interest to be clear in the nature and scope of a settlement agreement, especially if the overall amount is intended to reflect prior payments or setoffs.
That aside, what is troubling about this decision is the Second Department’s determination that the complaint sufficiently pled causes of action for bad faith and the violation of General Business Law §349. Traditionally, insurers have taken solace in the fact that a claim for bad faith is difficult to sustain in New York – even at the pleading stage. Many times, insurers successfully argue that a discrete dispute between an insured and insurer over the nature of coverage, or extent of coverage, is not sufficient to trigger a bad faith cause of action, even where the insured views the actions of the insurer as egregious etc. Here, the court believed that this limited and narrow dispute (i.e., the intent of the settlement agreement) gave rise to a claim of bad faith. Realistically, however, the allegations in this complaint are not starkly different to the allegations offered in most bad faith claims against insurers. Whether this decision presents a foothold for future litigants remains unclear.
Perhaps more concerning is the court’s determination that the General Business Law §349 claim also survived. A precondition for liability under that claim is that the defendant’s actions are directed to the public at large. As a matter of law, disputes between a single insurer and a single insured are not a basis for liability under the statute. However, plaintiff’s simple allegation that the behavior by the defendant was common in dealing with the public, was enough to survive the motion. From this writer’s view, General Business Law §349 claims are becoming increasingly difficult to dismiss at the pleading stage, despite the fact it is highly unlikely a coverage dispute between an insurer and an insured is premised upon actions directed at the public at large. The real exposure to this claim is not the statutory damages available to a plaintiff, but rather the discovery that may be permissible as plaintiff attempts to pursue and prove this cause of action.
Insurers should take note of this decision and continue to aggressively pursue dismissal of these causes of action early on. To the extent dismissal is not successful, insurers should certainly move to bifurcate discovery so that issues of bad faith and/or the violation of General Business Law are not litigated until after the issue of coverage is resolved.