At the outset, let me be clear that this is a complicated issue and the answer to the question is NOT an easy “Yes” or “No”. However, it’s an interesting issue that is important to ALL of us because the legal standards by which our insurance carriers are measured will directly impact the way our insurance companies treat us whenever we are forced to file a claim.
First, a little background about what “good faith”, and more importantly, “bad faith” means. Generally, our laws require all of us to act in “good faith” whenever we are interacting with other people or organizations. The idea is that we should all play fairly and by the rules. When we don’t play fair or violate the rules, that’s acting in “bad faith”. The purpose of our laws is to prevent people from breaking the rules or punish them when they do. Pretty simple so far, aye?
It gets much more complicated when we start trying to define exactly what constitutes “good faith” vs. “bad faith” because that determination often depends on the unique circumstances of the transaction between the two parties to the deal. For instance, if you have two parties who are negotiating a contract, both of whom have the same level of knowledge and sophistication, then the law may impose very few restrictions on them because it is presumed that it’s a “fair fight” between two equally strong combatants. On the other hand, if you have a situation where one side has significantly more power over the other party in the form of sophistication, knowledge or finances, the law may impose restrictions or requirements to level the playing field. In other words, our law won’t tolerate the bully. Hence, we have laws like anti-trust laws that prevent the formation of corporate monopolies, laws that require mandatory disclosure of information that a seller may know about a house they are selling, and laws that regulate how businesses interact with their customers.
Although I know it is a popular sentiment that we have too many laws, it is our system of laws that prevent chaos and a brutal world where it would just be “survival of the fittest”. Although I agree that there are many examples of ridiculous laws that should be eliminated or modified, it is our system of laws that permit us to live in a society that is relatively safe and prosperous.
OK, I digress….. but I think this general background is necessary to understand the state of New York law as it applies to how your insurance company is required to behave when evaluating a claim you have filed.
SO LET’S TALK ABOUT A CLAIM YOU HAVE FILED FOR NY NO-FAULT INSURANCE BENEFITS……..
OK, you have been in a car crash in New York and you have been seriously hurt and your car has been totalled. Under NY no-fault insurance law, your claim for your medical bills and your lost wages are submitted to YOUR insurance company regardless of who was at fault in causing the accident. If you have collision coverage on your car insurance, that claim too is submitted to your insurance company.
Remember: You have been paying insurance premiums for many years to this insurance company so that you would be protected if you ever had the misfortune to be in an accident. The insurance company is NOT paying your claim out of the niceness of their hearts….. they are paying you because in exchange for your hard-earned money, they have agreed to protect you should you have to make a claim.
So let’s talk about the question posed in the title to this post: Must an Insurance Carrier Engage in “Good Faith” When Evaluating Your Claim? The short answer is: YES.
Below are some excerpts from the No-Fault Paradise blog post on this topic:
A RECENT N.Y. INSURANCE DEPARTMENT OPINION LETTER SAYS THAT N.Y. INSURANCE CARRIERS MUST ACT IN GOOD FAITH IN PROMPTLY SETTLING CLAIMS BY THEIR CUSTOMERS
In a February 7th, 2008 General Counsel opinion letter, the insurance department was given this question:
Must a liability insurer effectuate settlements of claims in good faith when liability under the policy is shown to be clear?
The General Counsel’s office responded with this:
Yes. An insurer is required to effectuate settlement agreements in good faith.
The inquirer’s second question asks whether an insurer is obliged to effectuate the prompt settlement of a claim.
The short answer was Yes: [B]oth Insurance Law § 2601 and Regulation 64 provide that an insurance company must effectuate a settlement promptly and in good faith when there is a reasonable basis for doing so.
In light of the recent Court of Appeals decision (Bi-Economy Mkt., Inc. v Harleysville Ins. Co. of N.Y), this letter, and the recent draft regulation, it looks like a bad faith cause of action just may exist against insurance companies who improperly deny no-fault benefits.
This is an emerging area of the law that we will be following carefully.
Thanks for reading,
James B. Reed, Esq.
Personal Injury & Malpractice Attorney
Ziff, Weiermiller, Hayden & Mustico, LLP
303 William St., Elmira, NY 14902
Tel. (607) 733-8866 Fax. (607) 732-6062
Toll Free 1-800-943-3529