Insurance companies in New York sometimes face claims of improper denial, delay or underpayment of benefits. However, state law does not permit policyholders to file a separate lawsuit for common-law first-party bad faith. Instead, policyholders must bring their case as a breach of contract claim. They may also allege bad faith conduct to pursue punitive damages, but courts allow this only under extremely strict conditions.
To get punitive damages, policyholders must meet a very tough legal standard. They must prove that your company did not just break the contract but acted in a way that was seriously dishonest or unfair and that your behavior hurt more than just one person.
What constitutes bad faith?
There are several circumstances that could give rise to a bad faith allegation. This typically includes:
- Unreasonable denial of a valid claim
- Unjustified delays in processing or paying a claim
- Misrepresentation of policy terms or coverage
- Failure to investigate a claim thoroughly
Although policyholders cannot sue solely for bad faith, evidence of it can strengthen their related breach of contract claim.
Get legal assistance
A trial-tested insurance attorney can help your company review claim-handling procedures, evaluate potential risks and defend against bad faith allegations in or out of court. They can also ensure your team complies with state insurance laws and reduce exposure to costly penalties or reputation damage.
Bad faith disputes can escalate quickly. Stay proactive by keeping detailed records, following clear communication protocols and involving a legal counsel early in the process. Doing so protects your company’s interests while preserving your policyholders’ trust.