In the recent decision of General Motors Acceptance Corp. v. New York Central Mutual Fire Ins. Co., New York’s First Department reversed the lower court’s decision that denied the underlying general liability carrier’s motion for summary judgment.  The underlying action involved injuries sustained in a motor vehicle accident in which a judgment was entered in excess of the primary policy limits.  The underlying defendant and its excess carrier sued the general liability carrier for acting in bad faith based on its refusal to settle the claim for the full policy amount.  The insured and excess carrier argued that this refusal constituted reckless and gross disregard for the excess insurer’s rights and a failure to acknowledge the injured plaintiff’s potential damages.

The First Department, however, reasoned that the general liability carrier had not acted in bad faith because it had conducted a full investigation that included obtaining the opinions of four independent medical consultants and the use of experienced counsel for the damages trial.  The carrier also reviewed voluminous medical records that contradicted the findings of the injured plaintiff’s treating physicians and highlighted that the injuries were primarily pre-existing.  In sum, the court concluded that while the carrier’s actions may not have been prudent, it did not act in bad faith as the record showed that the carrier did not believe that the plaintiff sustained a serious injury that was causally related to the accident.  Therefore, the carrier did not breach its duty of good faith by making a decision that ultimately may have been a mistake in judgment.

Thanks to Moya O’Connor for her contributions to this post.  For more information, please contact Nicole Y. Brown at .