If your insurance company denies your claim, you can challenge the insurer’s decision in court in New York. Some businesses assume that if they prevail in the lawsuit against their insurance company, the insurer will be required to reimburse them for attorney fees. However, this is generally not the case in New York.
New York courts follow the “American Rule,” under which each party is generally responsible for their own attorney’s fees. Prevailing insureds can only recover attorney’s fees in insurance disputes when it is stipulated by a contract provision or if a specific statute or narrow exception applies.
Defensive Cases
While insureds generally cannot recover fees when they initiate litigation, New York provides an exception when the insured is placed in a defensive position. If the insurer brings a declaratory judgment action seeking to avoid coverage, and the insured is forced to defend itself and goes on to prevail in the case, the insured may recover attorney’s fees. In Mighty Midgets, Inc. v. Centennial Insurance Co.1, the New York Court of Appeals held that an insured who successfully defends against an insurer seeking to avoid coverage may recover the attorney’s fees, since the insured was “cast in a defensive posture by the legal steps an insurer takes in an effort to free itself from its policy obligations.” In the wake of this case, several courts have applied the so-called Mighty Midgets exception and awarded attorney’s fees to insureds cast in a defensive posture by their insurance company. The rationale is that the insurer’s contractual duty to defend should not require the insured to pay out-of-pocket to defeat the insurer’s own attempt to escape its obligations.
Bad-Faith Exception
In Sukup v. State of New York2, the New York Court of Appeals carved out a narrow exception to the American Rule when a case involves a particularly egregious breach of the insurer’s duty of good faith and fair dealing. The court held that an insured may recover attorney’s fees in situations where the insurer denied coverage in such bad faith that “no reasonable carrier would, under the given facts, be expected to assert” the denial. This standard, however, imposes a very high burden on policyholders, who must demonstrate that the insurer acted with a gross disregard of its obligations and lacked any reasonable basis for denying the claim. New York courts rarely award attorneys’ fees under the Sukup exception.
No-Fault Statute
Other narrow exceptions apply in cases where a specific statute dictates that the insured may recover attorney’s fees. In New York no-fault litigation, an insured may recover attorney’s fees from the insurer under specific circumstances as provided by New York Insurance Law § 5106. When a valid no-fault claim is overdue, the claimant is entitled to recover his attorney’s reasonable fee for services necessarily performed in connection with securing payment of the overdue claim, the statute states.
The Takeaway
In most insurance disputes in New York, insureds can expect to be responsible for their own attorney’s fees, except in very narrow situations.
If your business insurance company has denied or is challenging your claim, contact Schwartz, Conroy and Hack, PC for assistance. We have the expertise and tenacity to make insurance companies keep the promises they make to you and your business.
- Mighty Midgets v. Centennial Ins. Co., 47 N.Y.2d 12 (1979)
- Sukup v. State of New York 19 N.Y.2d 519 (1967)
