Alabama District Court Finds No Claim for Bad Faith Refusal to Pay Insurance Claim under NY Law

In Labrake v. State Farm Mutual Auto. Ins. Co., the District Court for the Western District of Alabama, sitting in diversity, applied New York law to plaintiffs’ claims for breach of contract, bad faith, and for underinsured motorist coverage.  Plaintiffs were injured in a car accident.  They settled with the under-insured driver who hit their car for that party’s maximum coverage of $50,000, and they sought recovery from State Farm and Metropolitan Casualty Insurance Company, as they had under-insured motorist coverage with both insurers.  Both refused  to pay.

After determining that defendants were subject to the court’s  jurisdiction and that New York law applied,

the court turned to the merits.  The court denied defendants’ motion to dismiss with respect to plaintiffs’ breach of contract claims, but it granted the motion with respect to plaintiffs’ claim for punitive damages and in connection with the defendants’ alleged bad faith refusal to pay plaintiffs’ insurance claim.  According to the court, New York does not recognize a “separate cause of action . . . in tort for an insured’s alleged bad faith in failing to perform its contractual obligations.”  Plaintiffs were hoping to persuade the court that Alabama law should apply, presumably because Alabama does allow for punitive damages against an insurer for bad faith refusal to pay out a claim.  Plaintiffs under-insured motorist claim was dismissed as duplicative.  

Surprising to learn that Alabama law should be more pro-plaintiff than New York law.  Get to work, NY consumer law advocates!

H/T @NY_Contracts!