The Appellate Division of the Supreme Court of New York, third department recently heard an appeal in the case of Dinstber v. Allstate Insurance. The subject matter: one which the appeals courts in New York have concerned themselves with a great deal recently, and one which we have devoted a not inconsiderable amount of commentary to. The intersection of contract and tort law is a fascinating subject, and cases and commentary continue to accumulate exploring these two spheres of the law.
Background of the Case
In early 2002 the plaintiff filed a claim with Allstate, stating that he’d been injured in a car accident and seeking no-fault insurance under his existing policy. Allstate denied his claim. Plaintiff then filed the lawsuit at issue here: actions for breach of contract and also for tort under the laws of New York. The breach of contract claim was relatively uninteresting and isn’t at issue in this appeal. The tort claim was based on the allegation that “defendant engaged in bad-faith tactics” by not fairly and promptly investigating the insurance claim prior to issuing the denial. The plaintiff of course sought punitive damages under the tort claim. Recall that punitive damages are unique to non-contract claims, in that they serve a retributive and deterrent purpose for certain bad conduct and thus move outside the purely economic concerns of contract law.
From a procedural standpoint, the defendant moved for partial summary judgment at the lower court level. The defendant argued that the tort claim was in essence the breach of contract claim in disguise, something that is not allowed under New York Law. Thus, the defendant asked that the tort claim, including the claim for punitive damages, be dismissed (the breach of contract claim would go forward regardless). The Supreme Court agreed with the defendant – this appeal by plaintiff ensued.
The court wrote some interesting stuff about the intersection of tort and contract law. Defining a kind of outer limit of the limitation of tort liability for breach of contract, the court articulated a circumstance where punitive damages could be obtained for breach of contract! However, the circumstances have to be pretty special, including egregious conduct and the existence of a separate tort outside the contract, thus the limitation to the limitation is of little use to the vast majority of breach of contract plaintiffs.
The key question is the identification of some duty owed outside the contract in order to find the separate tort necessary for punitive damages. The plaintiff’s claim of bad-faith tactics, in the court’s view, was simply not distinct enough to the requisite degree from the underlying breach of contract allegation.
Another interesting wrinkle: plaintiff alleged that defendant had violated a specific statute, Insurance Law Section 2601. This maneuver is a decent tactic, as often violation of an actual law (as opposed to a contract) can lead to tort liability. However in this case the court found that 2601 was specifically written to not give a private right of action in circumstances such as these.
If you have questions about breach of contract, please don’t hesitate to contact our officefor a consultation.