Insurance Bad Faith Actions: Not Completely Dead in New York

October 19, 2011

On Monday, October 17, 2011, in Traveras v. American Transit Insurance Co., 2011 N.Y. Slip 5183 (U), the New York State Supreme Court, County of Kings, held that American Transit Insurance Company acted in bad faith when it refused to settle for the full limits of its policy a lawsuit brought by a taxi passenger injured in a rear end accident, thereby exposing its insured taxi driver to the risk of being held personally accountable for a large judgment in excess of the policy limits.  The trial court’s decision sends a resounding message to insurance carriers that engaging in a pattern of “knowing and reckless disregard for the interest of its insured” will not be tolerated in New York and such actions for bad faith against carriers are alive and well.

This bad faith action arises from an underlying personal injury action involving a three car rear end collision, wherein the plaintiff, Jesus Taveras, was a passenger in a taxi that rear ended a rental car and was in turn hit in the rear by another taxi.  Both taxis were insured by American Transit for up to $100,000.  After a finding of liability against the drivers of the taxis and a reduction of the jury’s verdict, Taveras was awarded a judgment of $2.5 million plus interest in damages.  Prior to the trial of the underlying action, Taveras offered to settle the action for full tender of the Atlantic Transit polices for a total of $200,000, however, Atlantic Transit did not advise its insured of this settlement offer and refused the offer.

Thereafter, an insurance bad faith action was brought against Atlantic Transit for its conduct in the underlying action.  In determining that American Transit acted in bad faith by knowingly leaving its insured on the hook for a large judgment that he could not pay, the Court rebuked American Transit for refusing to acknowledge its bad faith and in its opinion granting the plaintiff summary judgment, cited to a quote from the 1991 film “A Few Good Men”, in which a marine played by Jack Nicholson tells an attorney, played by Tom Cruise, that he “can’t handle the truth.” The Court wrote that American Transit “refuses not only to acknowledge the truth, but to handle the truth!”  The Court’s reference to this wildly popular movie quote definitely drives home the intent of the Court’s decision which is that carriers who act in a reckless pattern of conduct in violation of its insured’s interests will be held liable in a bad faith action.

American Transit intends to appeal the trial court’s decision and we will monitor the appeal for the Appellate Division’s decision.