New York Court Dismisses Claims Against Insurer for Punitive Damages and Attorney’s Fees But Holds Consequential Damages Claim Can Move Forward in Bad Faith Action

In Millin v. Allstate Indemnity Co., et al., the insureds brought suit against Allstate for breach of contract and bad faith after Allstate partially denied their claim for water damage arising from a water leak in another apartment. Plaintiffs sought actual damages, consequential damages, punitive damages, and attorney’s fees. Allstate moved to dismiss Plaintiff’s claims for punitive damages, attorney’s fees, and consequential damages.

Based on the law of New York, the court granted Allstate’s motion to dismiss the claims for punitive damages and attorney’s fees, but denied the motion as to consequential damages, finding that consequential damages are permitted when they derive from an insurer’s bad faith refusal to pay an insured’s claim and were reasonably contemplated by both parties at the time of the contract’s execution.

With respect to the claim for punitive damages, the court pointed to well-settled New York law holding that punitive damages are not recoverable for an ordinary breach of contract as the purpose of those damages is to vindicate public rights and not to remedy private wrongs. The court further noted that punitive damages are only available in cases where the breach of contract also involved fraud with a high degree of moral turpitude and demonstrating “such wanton dishonesty as to imply a criminal indifference to civil obligation.” Finding that the Complaint only alleged a breach of contract between private parties and did not contain any allegations of fraud or wanton dishonesty, the court dismissed the punitive damages claim as a matter of law.

Regarding the claim for attorney’s fees, the court again examined long standing New York law and recognized that an insured may not recover the expenses incurred in bringing an action against its insurer to settle its rights under the policy. Since this action was exactly that—an action to settle their rights under the policy—the court dismissed this claim as a matter of law.

The court found in favor of the insureds, however, on the claim of consequential damages. The court explained that consequential damages resulting from a breach of good faith and fair dealing can be asserted in an insurance contract context, as 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.

The court held that the insureds sufficiently stated a claim for consequential damages by alleging that Allstate “misrepresented facts on some or all of communications and claims decisions, willingly and/or intentionally misrepresented available coverage and otherwise acted in bad faith.” Accordingly, Allstate’s motion to dismiss the consequential damages claim was denied.