New York’s Appellate Division, First Department, recently affirmed a trial court’s decision that allowed a bad faith claim to proceed alongside a breach of contract claim against an insurance carrier.
The dispute arose in response to coverage claims under New York’s Child Victims Act, enacted in 2019, to compensate sexual abuse survivors. The Rockefeller University alleged that Aetna failed to promptly resolve the claims, issue coverage decisions, provide copies of prior policies, properly investigate, and pay settlement of the sexual abuse claims. The Rockefeller University sued its insurers, alleging breach of contract, breach of good faith and fair dealing, and violations of New York’s General Business Law. The insurers moved to dismiss, arguing, among other things, that the breach of good faith and fair dealing cause of action was duplicative of the breach of contract cause of action. The New York Supreme Court denied that part of the insurers’ motion, holding that cause of action was distinct from The Rockefeller University’s breach of contract cause of action against the insurance carrier.[1] Aetna appealed.
The First Department affirmed, holding that the two causes of action were not duplicative for three reasons. First, it cited the different levels of damages available, noting that The Rockefeller University’s breach of contract claim was capped at the liability limits of its policies with Aetna.[2] Rockefeller University argued that Aetna’s foot-dragging required the university to pay over $700 million in settlement and defense costs from its own funds, resulting in lost investment opportunities and endowment income while incurring additional debt, among other costs.
Second, the First Department found that The Rockefeller University alleged enough facts of Aetna’s “gross disregard” of the university’s interests through its “wait and see strategy” to state a valid claim for bad faith.[3] The court recognized that no specific formula exists to determine whether an insurer acted in good faith and listed a set of factors that a court considers, including the likelihood that the plaintiff would prevail on the liability question, potential damages awards, the financial burden on the parties if an insurer refuses to settle, whether the claim was properly investigated, and “any other relevant proof tending to establish or negate the insurer’s good faith in refusing to settle.” [4]
Finally, the First Department found that The Rockefeller University’s allegation that Aetna violated General Business Law § 349(a) by engaging in “[d]eceptive acts or practices” was distinct from its breach of contract claim because Aetna was alleged to have harmed others, besides the university, including sexual abuse survivors, other policyholders, and Aetna’s investors.[5] The court rejected Aetna’s assertion that the lawsuit was merely a private dispute between an insurer and an insured.
The First Department’s decision means that insurance carriers are likely to face more difficulty in having claims of bad faith dismissed in New York at the early stages of litigation. This is significant because bad faith claims can result in large extra-contractual damages awards.[6] Those subject to such claims are encouraged to consult with HSE’s Litigation and Insurance Coverage groups as early as possible.
[1] Rockefeller Univ. v. Aetna Cas. & Sur. Co., 2024 N.Y. App. Div. LEXIS 5087 (1st Dep’t Oct. 3, 2024).
[2] Id. at *2.
[3] Id. at *2–3.
[4] Id. at *3.
[5] Id. at *3–4.
[6] See Your “Choice-of-Law” Provision May Not Mean What You Think, Harter Secrest & Emery LLP, https://hselaw.com/news-and-information/legalcurrents/your-choice-of-law-provision-may-not-mean-what-you-think/ [https://perma.cc/DDW8-7SJZ].