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The Rogak Report: 26 Nov 2008 (Part 2) ** Bad Faith - Punitive Damages **

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  • insurancelawyer
    COURT STRIKES PUNITIVE DAMAGES CLAIM IN SUIT OVER DENIAL OF LIABILITY COVERAGE; DISTINCTION DRAWN BETWEEN PUNITIVE AND CONSEQUENTIAL Silverman v. State
    Message 1 of 1 , Nov 26, 2008

      COURT STRIKES PUNITIVE DAMAGES CLAIM IN SUIT OVER DENIAL OF LIABILITY COVERAGE; DISTINCTION DRAWN BETWEEN "PUNITIVE" AND "CONSEQUENTIAL"

      Silverman v. State Farm Fire & Cas. Co. et al.
      2008 NY Slip Op 28468
      Decided on October 8, 2008
      Supreme Court, Nassau County
      Palmieri, J.
      Edited by Lawrence N. Rogak


      Plaintiffs were named insureds under several liability policies issued by the several insurers who were named as defendants here.    After the defendant-insurers disclaimed coverage for a sexual assault suit brought by a claimant in an underlying lawsuit, this plaintiff sued these insurers in this suit and added claims for punitive damages.  The defendants moved to strike those claims.

      "This is an insurance coverage case in which the plaintiffs have been sued in the Supreme Court, Queens County, for damages flowing from an alleged sexual assault committed by plaintiff Barry J. Silverman, DMD (defendant in the Queens action) on one Elizabeth Ceparano. As alleged in the underlying Queens action, the incident took place on September 10, 2006 at the premises of defendants' dental practice in Bayside, New York."

      "According to the complaint in the instant action, State Farm had issued a homeowner's liability policy to Silverman and his wife for premises located in Merrick, New York, and provided coverage liability coverage for the plaintiffs. The plaintiffs further allege that Travelers issued a business owner's liability policy to plaintiff University Dental, P.C., covering the plaintiffs. Charter Oak is alleged to have provided coverage under this policy. Firemans' Fund is alleged to have issued a commercial general liability policy [that] covered the plaintiffs. A fifth cause of action is asserted against defendant American, which is alleged to have issued another commercial general liability policy in favor of plaintiffs."

      "In their action, the plaintiffs seek a declaratory judgment that all these insurance carriers are obliged to defendant and indemnify the plaintiffs with regard to the pending action against them in Queens County. They also seek 'punitive damages and statutorily mandated damages, if applicable and deemed appropriate by the court under the circumstances.'"

      "The foregoing stems from denial of coverage by these carriers on various grounds.  The motions made by defendants for dismissal of the punitive damages claim and statutorily mandated claim are granted."

      "As this motion is made pursuant to CPLR 3211(a)(7), the Court must look within the four corners of the complaint, and if a cause of action is discernable therefrom the motion should fail.  In making this determination, the factual allegations asserted in the pleading are to be accepted as true, and the plaintiff is to be accorded the benefit of every favorable inference that may be drawn therefrom. Even when applying these well-established standards to the complaint in this action, however, it is apparent that a no claim lies for punitive damages or for unspecified 'statutorily mandated' damages."

      "Under New York law, punitive damages would be available in this case only where the plaintiffs could demonstrate that they were victims of a tort independent of the insurance contract even if denial of benefits under that contract could be deemed made in bad faith. New York University v Continental Ins. Co., 87 NY2d 308 (1995); Rocanova v Equitable Life Assurance Soc. of U.S., 83 NY2d 603 (1994). An independent tort is not alleged here. At best, the Court has before it a breach of contract that might be characterized as egregious, but that is not a tort. Moreover, punitive damages in the current context would require that the insurer's acts be those 'evincing a high degree of moral turpitude and demonstrating such wanton dishonesty as to imply a criminal indifference to civil obligations.'  Again, the allegations, and even the statement of plaintiffs' attorney, do not indicate behavior that rises to that level."  

      "Plaintiffs do not dispute the foregoing law. Rather, citing recent decisions of the Court of Appeals, they contend that they may sue for consequential damages resulting from the failure to provide coverage. Such a failure may indeed support such a claim if it flows from a breach of the covenant of good faith and fair dealing, which the courts will read into all insurance contracts. Bi-Economy Mkt., Inc. v Harleysville Ins. Co. of NY, 10 NY3d 187 (2008); Panasia Estates, Inc. v Hudson Ins. Co., 100 NY3d 200 (2008)."

      "However, as a claim for consequential damages is not the subject of the instant motions the Court need not address it as a basis for denying those motions, except to note that it does not serve to bolster a claim for punitive damages. Indeed, the Court of Appeals itself expressly distinguished the two and indicated no change to the law in that regard. 'When an insured... suffers additional damages as a result of an insurer's excessive delay or improper denial, the insurance company should stand liable for those damages. This is not to punish the insurer, but to give the insured its bargained-for benefit.' (emphasis added)."

      "Accordingly, the Court agrees with the defendants that a claim for punitive damages does not lie and the same is dismissed as to all defendants."

      "Further, to the extent the 'statutory' claim is premised on the alleged failure to settle fairly and quickly the insurance claims made, the reference is deemed to be to Insurance Law ยง2601(c), which prohibits unfair claims settlement practices, but New York does not currently recognize a private right of action thereunder. Kantrowitz v Allstate Indem. Co., 48 AD3d 753 (2d Dept. 2008). Accordingly, it too is dismissed as to all defendants."

      "However, in view of the recent Court of Appeals decisions cited above, and the very early stage of the instant litigation, the plaintiffs may serve an amended complaint seeking consequential damages, as sought in counsel's request to replead. The defendants oppose the request, but the Court notes that the 2005 amendment to CPLR 3211(e) eliminated the requirement that the party facing dismissal under CPLR 3211 demonstrate 'good ground' to replead. The Memorandum in Support of the New York State Senate indicates that one of the purposes of the amendment was to reassert the rule of Rovello v Orofino (40 NY2d 633 [1976], which drew a clear distinction between motions under CPLR 3212 and CPLR 3211, so that when the motion to dismiss was addressed only to the pleading a pleader was not put in the position, in effect, of having to defend his case as he would on a summary judgment motion in order to obtain leave to replead. McKinney's 2005 Session Laws, Vol. 2, at 2441. As noted, this case is in the very early stages, and the law on the subject has at least arguably been changed to allow for a consequential damages claim here. Thus, given the elimination of the 'good ground' requirement, repleading will be allowed."

      "The cross motion by State Farm to dismiss for failure to include the Elizabeth Ceparano and Ronald Ceparano (the latter also alleged by plaintiffs' counsel to have been part of the scheme to extort money) is denied. Given the essential nature of this case, these individuals, strangers to the insurance contracts at issue, are not necessary for any of the current parties to obtain complete relief."

      Larry Rogak

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