Opinion
6702/2008.
Decided March 11, 2009.
LESTER B. HERZOG, BROOKLYN, NEW YORK, Plaintiff's Attorney.
LAW OFFICES OF KAREN C. DODSON, NEW YORK, NEW YORK, ATN MICHAEL L. RAPAPORT, ESQ., Defendant Attorney.
Defendant, TRAVELERS CASUALTY COMPANY OF CONNECTICUT, (hereinafter "Defendant"), moves this court for an Order pursuant to CPLR § 3211(a)(1), § 3211(a)(3), § 3211(a)(7), dismissing part of this action and granting further relief as this Court deems just and proper.
Upon reading the Notice of Motion by Michael L. Rappaport, Esq., Attorneys for Defendant, TRAVELERS CASUALTY COMPANY OF CONNECTICUT, dated April 2nd, 2008, together with the Affirmation in Support of the Motion to Dismiss, dated April 2nd, 2008, and all exhibits annexed thereto; the Affidavit in Opposition by Lester B. Herzog, Esq., Attorney for Plaintiffs, DIMITRY GRINSHPUN, SERGIO M. ROVNER and ANNA ROVNER, dated September 11th, 2008, and all exhibits annexed thereto; the Reply Affirmation of Michael L. Rappaport, Esq., dated October 10th, 2008, and all exhibits annexed thereto; and after argument of counsel and due deliberation thereon, the Defendant's motion to dismiss the second cause of action is denied for the reasons set forth below.
FACTS
Plaintiffs were involved in a car accident on July 31st, 2004. The owner and driver of the car that hit Plaintiffs, had a GEICO policy which covered $25,000 per person and $50,000 per accident. GEICO tendered the policy to Plaintiffs who accepted, with the approval of their own carrier Defendant Travelers.
Plaintiff Sergio M. Rovner held a policy with Defendant Travelers which included "Supplementary Uninsured/Underinsured Motorist" coverage with $100,000/$300,000 policy limits. It is not disputed that each Plaintiff is a "covered person" under the terms of the policy.
Plaintiff Grinshpun and Plaintiff Sergio M. Rovner allege they suffered injuries which entitled them to the full $100,000 "Supplementary Uninsured/Underinsured Motorist" (SUM) coverage each under the terms of the policy held with Defendant.
Plaintiff Anna Rovner asserts she is entitled to full coverage of $100,000, as she suffered loss of consortium resulting from the injuries sustained by her husband.
Plaintiffs made a claim for underinsured benefits under Rovner's policy which was denied by Travelers.
Plaintiffs further allege that Defendant's refusal to pay was not made in good faith and as a result, Plaintiffs seek a judgment "awarding damages" in the sum of $100,000 each, a judgment "awarding damages" in the sum of $1,000,000 each, and interest, the costs and disbursements associated with bringing this action to compel the coverage they allege they are entitled to.
ARGUMENTS
Defendant argues Plaintiffs lack legal capacity to sue as there is no "private right of action" to bring this claim. Defendant states there is no legal basis for Plaintiffs to seek damages in excess of what they would have been entitled to under the policy had they presented valid claims.
They argue that there is no separate cause of action sounding in tort for a bad faith claim for breach of contract and that the relief Plaintiffs seek is not available as a cognizable cause of action.
Defendant further argues that Plaintiffs cannot make out a claim for bad faith as Defendant has not acted with "gross disregard" in failing to settle the Plaintiffs' claims.
Defendant also argues that Plaintiffs' counsel may become a necessary witness in the resolution of whether the Plaintiffs' claims were settled in good faith and therefore should be disqualified as counsel.
Plaintiffs argue that although this specific cause of action has not yet been recognized in New York, the law is evolving in this area and this court should permit the action to go forward to permit Plaintiffs to seek relief in excess of the policy limits.
ANALYSIS
On a motion to dismiss the complaint pursuant to CPLR 3211(a)(7) for failure to state a cause of action, the court must afford the pleading a liberal construction, accept all facts as alleged in the pleading to be true, accord the plaintiff the benefit of every possible inference, and determine only whether the facts as alleged fit within any cognizable legal theory. NCJ Cleaners, LLC v. ALM Media, Inc. , 48 AD3d 766 N.Y.A.D. 2 Dept.,2008.
Plaintiffs assert two causes of action. First they allege that they are entitled to the amount equal to the policy limits of their underinsured coverage as they have suffered injuries in excess of the $100,000 limit of their coverage. Defendants have not moved to dismiss this first cause of action.
Defendant is seeking to dismiss only the second cause of action which seeks $1,000,000 in unspecified damages for Defendant's alleged bad faith which Plaintiffs allege amounts to a gross disregard for Plaintiffs' interests. Plaintiffs claim Defendant acted in bad faith in refusing to pay the policy limits of Plaintiffs' supplemental underinsured motorists coverage (SUM) for losses they sustained.
Plaintiffs are seeking damages in excess of the policy limits due to Defendant's alleged breach of its duty under the policy to exercise good faith in paying Plaintiffs SUM claims. This claim differs from the situation where an insured seeks damages where the insurer refuses to settle a tort action against the insured within the policy limits and the insured is subjected to a judgment in excess of the policy limits. Here Plaintiff seeks extra contractual damages for a denial of a first party claim, not for being exposed to further liability to a third party. Also, this is not a claim for punitive damages as Plaintiffs seek to be compensated for the cost of having to commence a lawsuit to enforce their claim, not to punish the Defendant for its alleged bad faith.
Despite Plaintiffs' assertion that this is a novel legal theory, the Court of Appeals in Sukup v. State of New York, 19 NY2d 519, 281 NYS2d 28 (1967), established that there is a cause of action for extra contractual damages where an insurer refuses, in bad faith, to pay a claim of its own insured.
In Sukup, the Court determined that a viable cause of action could be maintained for "extra-contractual damages" from an insurer's bad faith denial of coverage, even though in the case before it, plaintiff did not demonstrate that the insurer denied his worker's compensation coverage in bad faith.
The Sukup Court held that while an insured cannot recover his legal expenses in a controversy with a carrier over coverage merely because the carrier is held responsible for the loss, or where the dispute is an arguable difference of opinion, it can recover such costs where the denial is made in bad faith.
The Court of Appeals set forth the standard required in order to prevail on such a claim, holding, "It would require more than an arguable difference of opinion between carrier and insured over coverage to impose an extra contractual liability for legal expenses in a controversy of this kind. It would require a showing of such bad faith in denying coverage that no reasonable carrier would, under the given facts, be able to assert it". Id. at 522.
There have been several cases since Sukup in which the courts, while finding that plaintiff was unable to demonstrate bad faith, acknowledged the cause of action for damages, including attorneys' fees for a bad faith denial of coverage, citing Sukup.
In Liberty Surplus Insurance Corporation v. the Segal Company, 420 F.3d 65 (2nd Cir 2005), the Court acknowledged that an insured could recover the costs of litigation, including attorneys' fees, in a coverage dispute, citing Sukup, but affirmed the dismissal of the Segal Company's counterclaim because it did not allege that its insurer denied its claim in bad faith.
In Greenburgh Eleven Union Free School District v. National Union Fire Insurance Company of Pittsburgh, PA, the First Department declined to reverse the lower court's findings that the plaintiff was not entitled to reimbursement for legal fees in its declaratory judgment actions against its insurers, because it had not shown bad faith. It relied on Sukup, reasoning that "each [insurer] had an arguable basis for their respective disclaimers". Greenburgh Eleven Union Free School District v. National Union Fire Insurance Company of Pittsburgh, PA, 304 AD2d 334, (1st Dept 2003.)
A few months later in Wurm v. Commercial Insurance Company of Newark, New Jersey, 308 AD2d 324, (1st Dept 2003,) the First Department again declined to award attorney's fees to a plaintiff, citing Sukup, finding that the plaintiff failed to make the requisite "showing of such bad faith in denying coverage that no reasonable carrier would, under the given facts, be expected to assert it". ( See also Mahler v. the New England Mutual Life Insurance Company, 267 AD2d 146, (1st Dept 1999.)
Both sides cite two recent cases decided by the Court of Appeals which expand the type of relief available in bad faith claims by an insured against its insurer. These cases permit an insured to seek consequential damages that were within the contemplation of the parties at the time of contracting when an insurer acts in bad faith in disavowing coverage. They expand the situations in which extra contractual damages may be sought, but they neither disturb Sukup nor are they on point with the issues in this case.
In Bi-Economy Market, inc. v. Harleysville, 10 NY3d 187, 856 NYS2d 505 (Ct of Appeals 2008)the court held that plaintiff was entitled to extra contractual consequential damages as the result of the defendant's bad faith handling of plaintiff's claim. . The Court found plaintiff was entitled to the damages for ongoing business interruption as they were reasonably contemplated by the parties prior to contracting and a "natural and probable consequences of the breach", citing Kenford Co. v. County of Erie, 73 NY2d 312, 537 NE2d 176 (1989). The Court stated that the reason the insurer company should be held liable for consequential damages was "not to punish the insurer, but to give the insured its bargained for benefit". Id at 195, 510.
Similarly, in Panasia Estates, Inc. v. Hudson Insurance Company , 10 NY3d 200 , 856 NYS2d 513 (2008), the Court found that even though not specifically provided for in the contract terms, a claim for consequential damages, for losses caused by a delay in investigating a claim, should not have been dismissed by the lower courts where "the damages were within the contemplation of the parties as the probably result of a breach at the time of or prior to contracting'", quoting Kenford Co. v. County of Erie, 73 NY2d 312, 537 NE2d 176 (1989).
In the case at bar, Plaintiffs do not allege that they suffered any damages as a consequence of Defendant's bad faith refusal to pay their claims other than the costs associated with having to commence a legal action to enforce their claims. Such damages are not consequential damages that were contemplated by the policy as in the situations in Bi-Economy and Panasia.
However, the expanded recognition of recovering foreseeable consequential damages of Bi-Economy and Panasia did not disturb the Court's recognition in Sukup of a cause of action for the costs of a suit to enforce a claim by an insured where its insurer denies a claim in bad faith.
The motion before the Court is to dismiss for failure to state a cause of action pursuant to CPLR § 3211, not for summary judgment. Therefore in deciding this motion the Court does not consider whether Plaintiffs will in fact be able to establish that the insurer acted in bad faith in denying their claims.
Defendant also argues that if the second cause of action survives, Plaintiffs' counsel must be disqualified as a necessary witness.
At this point in the proceeding, it does not appear that Plaintiffs' counsel will be a necessary witness. The fact that Defendant told Plaintiffs' counsel that they did not believe plaintiffs claims to be worth the full policy tendered by Geico does not appear to be in dispute. The conversations between Defendant's adjuster and Plaintiffs' counsel are not at issue, the offer made by Defendants is. The relevant question is whether it had a good faith basis to deny the claim. It does not appear from the papers that the specific conversations between Plaintiffs' counsel and the claims representative are probative of whether Defendant had a good faith basis for its denial.
WHEREFORE, the Court denies Defendant's motion to dismiss Plaintiffs' second cause of action and the motion to disqualify Plaintiffs' counsel. This shall constitute the decision and order of this Court.