McCarter and English on New York Courts Continue to Broaden Bad Faith and Extra-Contractual Remedies Against Insurance Companies

 By Nicholas M. Insua and Craig W. Davis, Attorneys, McCarter & English, LLP

The decision of the New York Supreme Court in Estee Lauder Inc. v. OneBeacon Insurance Group, No. 602379/05, 2012 N.Y. Misc. LEXIS 902, 2012 NY Slip Op 30474U  (N.Y. Sup. Ct. Feb. 29, 2012), is another significant victory for policyholders.  The decision followed the First Department's earlier holding that the insurance company had waived its late notice defense and had to promptly pay the policyholder's "reasonable and necessary" defense costs.  The Supreme Court in its recent decision held that the policyholder could pursue a bad faith claim against its insurance company for fees incurred in the coverage action because it continued to refuse to pay any defense costs, even in the face of the First Department's decision.

Standing on its own the decision is important, "[b]ut perhaps more importantly, Estee Lauder fits within a more robust jurisprudential trend that over the last few years has seen an easing of the strictures policyholders face in seeking complete relief against their insurance companies."  Over the last few years, New York courts have clarified the right of policyholders to seek consequential damages when their insurance companies breach their insurance policy obligations, and have held that such consequential damages might include counsel fees paid in coverage litigation.  Now Estee Lauder provides an additional way for policyholders to pursue a bad faith claim.

Nicholas Insua is a partner and Craig Davis an associate at McCarter & English, LLP in Newark, New Jersey, where they regularly represent policyholders in disputes with their insurance companies. The opinions expressed in this article are those of the authors and not necessarily of McCarter & English or its clients.

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