Lead Opinion
OPINION OF THE COURT
This appeal considers plaintiffs entitlement to insurance
In November 1995, plaintiff, a physician with specialities in internal and pulmonary medicine, initially became ill. While an exact diagnosis turned out to be difficult, he underwent numerous bone marrow aspirates, biopsies, and cytogenetic examinations, including blood tests, which revealed abnormalities and the presence of a blood disorder. Dr. Acquista was ultimately informed of a possible diagnosis of myelodysplasia, a disease that might convert into leukemia. His treating physicians have instructed him to avoid exposure to radiation. Presently, he suffers generally from easy fatigue, headaches, and diffuse muscle and joint pain.
However, his application for disability benefits under the three disability insurance policies was rejected by the defendant insurer, on the ground that he can still perform some of “the substantial and material duties” of his regular job or jobs and therefore is not “totally disabled.” This lawsuit followed, in which plaintiff brought claims for breach of contract, bad faith and unfair practices, fraud and fraudulent misrepresentation, and negligent infliction of emotional distress.
Upon defendants’ motion under CPLR 3211, the Supreme Court granted dismissal of all plaintiff’s causes of action except the one based upon the policy provision for residual and partial disability benefits. We now modify the order so as to reinstate a number of the dismissed causes of action.
The Breach of Contract Claims
In support of their motion for dismissal of plaintiff’s first, second, and third causes of action, claiming breach of contract, defendants relied upon the language of the three disability insurance policies purchased by plaintiff. Two of those policies provided that the insured will be considered totally disabled if he cannot perform “the substantial and material duties” of his regular job or jobs. The third, somewhat more specifically, defined totally disabled as unable to perform “any of the substantial and material duties” of his regular job or jobs (emphasis supplied). Defendants emphasized that plaintiff is certified both as a pulmonologist and an internist, and assert that plaintiff is still able to perform some of the “substantial and material duties” of an internist.
In addition to the policies themselves, defendants relied upon a 1996 deposition of plaintiff in an unrelated action, at which
In granting dismissal of these causes of action, the IAS court concluded that even though plaintiff was unable to perform bronchoscopies and other procedures using radiology during the relevant time period, he remained able to practice internal medicine as well as aspects of pulmonary medicine that do not necessitate exposure to radiation. We view this conclusion as a factual determination unwarranted in this context.
Upon review of a motion made pursuant to CPLR 3211, we are required to accept as true the allegations of the complaint (Guggenheimer v Ginzburg,
It is irrelevant whether plaintiff is still able to perform other types of tasks. To prevail on their motion, defendants’ documents must conclusively establish, as a matter of law, that
In plaintiffs affidavit in opposition to defendants’ dismissal motion, he explains that prior to his disability, he earned about 90% of his income as a pulmonologist, and that he can no longer practice pulmonary medicine. Indeed, he explains that a pulmonologist is required to perform bronchoscopies, which he is now unable to do.
Further, from the record before us, it cannot be said as a matter of law that as to the remaining 10% of bis income that he previously earned as an internist, he is still able to perform those “substantial and material duties” that he was performing at the time he became disabled. Initially, plaintiff explains that inasmuch as all pulmonologists are subspecialists within the specialty of internal medicine, all pulmonologists are by definition internists. However, as an internist, plaintiff can no longer even enter the ICU if any procedures involving radiation, such as fluoroscopies, are being performed. He explains that this prevents him from functioning competently as a treating physician. Further, he is now unable to treat patients in a hospital, because he becomes too easily fatigued.
Plaintiff adds that he receives no salary for certain other aspects of his work upon which defendants rely, such as his teaching position and that of Chairman of the hospital’s Quality Assurance Committee.
The question therefore becomes whether those tasks that plaintiff is still demonstrably able to handle, such as seeing a limited number of patients who can make office visits, are substantial enough to amount to the ability to perform “the substantial and material duties” of his regular job or jobs as they existed prior to the onset of his illness. We consider this question to involve a factual determination, precluding dismissal of plaintiffs first, second and third causes of action at this juncture.
Bad Faith Conduct
Plaintiffs fifth and sixth causes of action allege a pattern of bad faith conduct and unfair practices on the part of defen
In seeking dismissal of the bad faith claim, defendant asserts that New York law does not recognize an independent tort cause of action for an insurer’s alleged failure to perform its contractual obligations under an insurance policy, relying upon Rocanova v Equitable Life Assur. Socy. (
It is correct that, to date, this State has maintained the traditional view that an insurer’s failure to make payments or provide benefits in accordance with a policy of insurance constitutes merely a breach of contract, which is remedied by contract damages (see, Rocanova, supra; New York Univ. v Continental, supra). Yet, for some time, courts and commentators around the country have increasingly acknowledged that a fundamental injustice may result when a traditional contract analysis is applied to circumstances where insurance claims were denied despite the insurers’ lack of a reasonable basis to deny them (see generally, Note, The Availability of Excess Damages for Wrongful Refusal to Honor First Party Insurance Claims — An Emerging Trend [hereinafter, Availability of Excess Damages], 45 Fordham L Rev 164 [1976]; Sykes, “Bad Faith” Breach of Contract by First-Party Insurers, 25 J Legal Studies 405, 408-409 [1996]; Harvey and Wiseman, First Party Bad Faith: Common Law Remedies and a Proposed Legislative Solution, 72 Ky LJ 141, 167-169 [1984]; Note, First-Party Bad Faith: The Search for a Uniform Standard of Culpability, 52 Hastings LJ 181, 187-189 [2000]).
Under the traditional analysis, because insurance policies are viewed as contracts for the payment of money only, the damages available for an insurer’s failure to pay or provide benefits have been limited to the amount of the policy plus interest (see, Availability of Excess Damages, 45 Fordham L
Among other things, this concept of damages presumes that a plaintiff has access to an alternative source of funds from which to pay that which the insurer refuses to pay. This is frequently an inaccurate assumption. Additionally, an insured’s inability to pay that which the insurer should be covering may result in further damages to the insured. Of course, limiting the potential damages to the policy amount also fails to address the potential for emotional distress or even further physical injury that may result where a plaintiff under the strain of serious medical problems is forced to also undertake the stress of extended litigation. What is more, if statutory interest is lower than that which the insurer can earn on the sums payable, the insurer has a financial incentive to decline to cover or pay on a claim (see, Availability of Excess Damages, 45 Fordham L Rev, supra, at 167).
In view of the inadequacy of contract remedies where an insurer purposefully declines or avoids a claim without a reasonable basis for doing so, a majority of states have responded to this need for a more suitable remedy by adopting a tort cause of action applicable to circumstances where an insurer has used bad faith in handling a policyholder’s claim (see, Chavers v National Sec. Fire & Cas. Co., 405 So 2d 1, 6 [Ala 1981]; State Farm Fire & Cas. Co. v Nicholson, 777 P2d 1152, 1156-1157 [Alaska 1989]; Noble v National Am. Life Ins. Co., 128 Ariz 188, 189-190,
This cause of action is generally stated as a breach of the insurer’s duty of good faith. Under this approach, where an insured demonstrates more than merely a denial of benefits promised under a policy of insurance, but instead, that the insurer’s denial of the claim was deliberately made in bad faith, with knowledge of the lack of a reasonable basis for the denial, the insured may be entitled to compensatory tort damages.
Other states, troubled by imposing upon insurance companies a tort duty in such circumstances, have instead expanded the scope of contract remedies to encompass more than just the policy limits. These courts have instead held that the contract damages available, where an insurer fails to pay benefits to which the insured was entitled, may include foreseeable money damages beyond the policy limit (see, Lawton v Great Southwest Fire Ins. Co., 118 NH 607, 614-615,
We are unwilling to adopt the widely accepted tort cause of action for “bad faith” in the context of a first-party claim, because we recognize that to do so would constitute an extreme change in the law of this State. Essentially, we accept the more conservative approach adopted by the minority of jurisdictions that “the duties and obligations of the parties [to an insurance policy] are contractual rather than fiduciary” (Beck v Farmers Ins. Exch., supra, at 800). However, as this Court has recently acknowledged, “an insured should have an adequate remedy to redress an insurer’s bad faith refusal of benefits under its policy” (see, Batas v Prudential Ins. Co.,
Therefore, in order to ensure the availability of an appropriate and sufficient remedy, we adopt the reasoning of the Beck court that
“there is no reason to limit damages recoverable for breach of a duty to investigate, bargain, and settle claims in good faith to the amount specified in the insurance policy. Nothing inherent in the contract law approach mandates this narrow definition of recoverable damages. Although the policy limits define the amount for which the insurer may be held responsible in performing the contract, they do not define the amount for which it may be liable upon a breach.” (Beck v Farmers Ins. Exch.,701 P2d 795 , 801, supra.)
We consider the need for this form of damages to be apparent. The problem of dilatory tactics by insurance companies seeking to delay and avoid payment of proper claims has apparently become widespread enough to prompt most states to respond with some sort of remedy for aggrieved policyholders. To term such a claim “unique to these parties” as the dissent does, and therefore not warranting a remedy beyond that traditionally available for an insurer’s failure to pay on a claim, is to utterly ignore this fact.
As to the dissent’s suggestion that the claim of bad faith is undermined by our finding that an issue of fact exists as to
By the same token, the dissent’s conclusion that plaintiff is partially to blame for the delay in the processing of his claim is inappropriate in the context of this motion, in which we are required to accept the facts as plaintiff alleges them to be.
For all the foregoing reasons, while plaintiff’s cause of action alleging bad faith conduct on the part of the insurer cannot stand as a distinct tort cause of action, we conclude that its allegations may be employed to interpose a claim for consequential damages beyond the limits of the policy for the claimed breach of contract.
Unfair Practices
Plaintiff’s sixth cause of action, as amplified by the affidavits he submits in opposition to the motion, states a cognizable claim for unfair practices under General Business Law § 349 (see, Gaidon v Guardian Life Ins. Co.,
Finally, plaintiffs seventh and eighth causes of action, for fraud and negligent infliction of emotional distress, were properly dismissed. Plaintiffs seventh cause of action, claiming fraud and fraudulent inducement, asserted against defendant insurance brokers as agents of defendant insurer, cannot stand, in view of the language of the policies (see, Gaidon v Guardian Life Ins. Co., supra,
Accordingly, the order of the Supreme Court, New York County (Jane Solomon, J.), entered on or about November 5, 1999, which granted defendant-respondent’s motion to dismiss the complaint except for the fourth cause of action, should be modified, on the law, to deny the motion with respect to plaintiffs first, second, third, fifth and sixth causes of action and to reinstate those causes of action, and otherwise affirmed, without costs.
Notes
Other states have adopted statutes to the same effect (see, Fla Stat Annot § 624.155; 42 Pa Cons Stat § 8371).
Dissenting Opinion
(dissenting in part). I agree that, although defendants’ documentary evidence tends to support the IAS court’s finding that, even though plaintiff was unable to perform bronchoscopies and other radiology-using procedures during the relevant time period, he was able to practice internal medicine as well as aspects of pulmonary medicine that do not necessitate exposure to radiation, there are questions of fact presented, which cannot be determined as a matter of law on this dismissal motion, as to whether plaintiff was “totally disabled” within the meaning of the three subject in
However, plaintiffs remaining claims, sounding in tort, for bad faith and unfair practices, fraud and fraudulent inducement, and negligent infliction of emotional distress, were properly dismissed pursuant to CPLR 3211 (a) (7) since, giving the complaint every favorable intendment, plaintiff is “merely seeking to enforce [his] bargain” (see, New York Univ. v Continental Ins. Co.,
Plaintiffs tort claims are based upon his allegations that, even though he provided all requested documentation, New York Life continued to delay in determining his claim; that he made a reasonable settlement demand, which New York Life wrongfully and unjustifiably refused to accept; and, that New York Life’s dilatory tactics in delaying processing of his claim included shuttling plaintiff from employee to employee. Such, allegations, however, describe what “is essentially a ‘private’ contract dispute over policy coverage and the processing of a claim which is unique to these parties, not conduct which affects the consuming public at large” (see, New York Univ. v Continental Ins. Co., supra,
Plaintiff claims that New York Life’s conduct constitutes a public wrong in that he was in a weaker bargaining position than New York Life because of its superior knowledge and his reliance upon the Kho defendants, who sold him the policies. He also attempts to distinguish Continental Insurance (supra) on the ground that there the insured received expert representation and advice in the procurement of the policy. Such arguments are unavailing inasmuch as plaintiff’s dealings with the Khos and New York Life were at arm’s length and there is no allegation, let alone any evidence, of a confidential relationship sufficient to justify any such reliance (see generally, Batas v Prudential Ins. Co.,
Any suggestion by plaintiff that his bad faith claim has much in common with the law regarding insurers’ bad faith refusal to settle liability claims and his reliance upon Pavia (supra) is unavailing.
Plaintiffs claims of bad faith and unfair practices are based solely upon his allegation that defendant undertook a conscious campaign to delay rendering a decision on his claims. Such allegations are simply insufficient to “establish that the insurer’s conduct constituted a ‘gross disregard’ of the insured’s interests — that is, a deliberate or reckless failure to place on equal footing the interests of its insured with its own interests when considering a settlement offer * * *. In other words, a bad-faith plaintiff must establish that the defendant insurer engaged in a pattern of behavior evincing a conscious or knowing indifference to the probability that an insured would be held personally accountable for a large judgment if a settlement offer within the policy limits were not accepted” (Pavia, supra,
As to claims of the insurer’s delay in evaluating whether or not to accept a time-limited settlement offer, the Court stated: “That defendant could have acted more expeditiously does not convert inattention into a gross disregard for the insured’s rights, particularly where, as here, there is no contention that the insurer failed to carry out an investigation, to evaluate the feasibility of settlement * * * or to offer the policy limits before trial after the weakness of the insured’s litigation position was clearly and fully assessed” (id.). Thus, the Court essentially held that, in order to satisfy the necessary “gross disregard for the insured’s rights” standard, a plaintiff would have to allege and ultimately prove that the insurer unreasonably “failed to carry out an investigation,” failed to “evaluate” the feasibility of settlement (in this case plaintiff’s claim), or failed to offer the policy limits (in this case pay plaintiff’s claim), after the merits of the claim were “clearly and fully assessed.” Here, on the other hand, plaintiff’s complaint is really the opposite: that defendant took too much time in investigating and evaluating his claim before denying it, after its merits were “clearly and fully assessed.”
Because plaintiffs complaint fails to state a cognizable “bad faith” cause of action, there are no relevant factual issues. We would note, however, without deciding the issue, that plaintiff does not appear to be entirely blameless with regard to any delay in processing his claim. The record reflects that plaintiffs proof of claim was submitted to defendant on February 13, 1997; that his Confirmation of Interview form is dated November 25, 1997; that copies of plaintiffs personal income tax returns for the years 1990 through 1996 were provided to defendant on December 2, 1997; that, at defendant’s request, additional financial information regarding plaintiff was submit
With respect to the fourth cause of action that was not dismissed, for breach of contract for denial of residual or partial disability benefits, plaintiffs demands for punitive damages and attorneys’ fees were properly dismissed, since the allegations support only a claim for breach of contract (see, Continental Ins., supra, at 315-316, 324).
Accordingly, I would modify the order only to the extent of denying the motion with regard to the first, second and third causes of action.
Mazzarelli and Wallace, JJ., concur with Saxe, J.; Tom, J. P., and Andrias, J., dissent in part in a separate opinion by Andrias, J.
Order, Supreme Court, New York County, entered on or about November 5, 1999, modified, on the law, to deny defendant-respondent’s motion to dismiss the complaint with respect to the first, second, third, fifth and sixth causes of action and to reinstate those causes of action, and otherwise affirmed, without costs.