Chernish v. Massachusetts Mutual Life Insurance Company, (Case No: 5:08 CV 0957)
In 1987 Plaintiff Anne Chernish obtained a disability income insurance policy from defendant Massachusetts Mutual Life Insurance Company. In and around 1988, plaintiff allegedly became ill and filed a claim for benefits under the policy.
For reasons beyond the Court’s knowledge at the time of the decision, benefit payments were apparently stopped in 2001 and 2004. Despite plaintiff’s renewed request for benefits, the insurer did not disclaim coverage and had not renewed payments. Plaintiff, as a result, filed suit alleging three causes of action.
Initially, the plaintiff sought recovery under a typical breach of contract claim. The plaintiff also alleged a breach of covenant of good faith and fair dealing. As quoted by the Court, the plaintiff asserted:
The systematic and exclusionary misconduct on the part of the defendant included but is not limited to: delaying the payment of claims’ requiring unreasonable and repeated production of documents; making unreasonable settlement offers before engagement of counsel…and otherwise acting in bad faith.
As a result of these actions, the plaintiff allegedly sustained damages in the form of, “loss of benefit of the bargain; loss of insurance benefits including peace of mind…loss of dignity…expenditure of unreasonable amounts of time in pursuing [sic] her claims herein.”
Finally, the plaintiff alleged the violation of New York Business Law §349 and sought recovery of attorneys’ fees. The insurer made a motion to dismiss the latter two causes of action. The Court patently rejected the defendant’s contention that New York did not recognize a breach of covenant of good faith outside the context of a breach of contract claim in an insurance coverage dispute.
In rejecting this claim, the Court referenced the New York Court of Appeal’s decision in Panasia Estates, Inc. v. Hudson Ins. Co., 10 N.Y.3d 200 (2008), where New York’s highest court stated, “consequential damages resulting from the breach of the covenant of good faith and fair dealing may be asserted in an insurance contract context, so long as the damages were ‘within the contemplation of the parties as the probable result of a breach at the time of or prior to contracting.” [See also Bi-Economy Mkt., Inc. v. Harleysville Ins. Co. of N.Y., 10 N.Y.3d 187 (2008)]
The Court concluded that the plaintiff’s alleged damages were within the contemplation of the parties as a likely result of a breach at the time of contracting. The Court stated that the Bi-Economy Mkt. decision “has changed the landscape” regarding potential damages available to a plaintiff. While the Court granted the request to dismiss the §349 claim, in light of the Bi-Economy decision, the Court held that it was simply too early in the litigation to dismiss the claim for attorneys fees.
This decision recognizes and applies the principle that the New York Court of Appeals has expanded the scope of potential damages available to a policyholder in a coverage dispute. The traditional rule in New York State that a policyholder could not recover defense costs in an action brought by the policyholder against the insurer is potentially slipping away. [See Mighty Midgets, Inc. v. Centennial Insurance Company, 4 N.Y.2d 12 (1979)] Policyholders can now contend such attorneys fees are part of the consequential damages incurred by the policyholder. Insurers must consider the expanded scope of potential damages in evaluating disputes and prepare to respond accordingly.
For a copy of the decision click here
By Brian R. Biggie and Daniel W. Gerber